tl;dr: The CNN claim, now walked back seems to have been due to Israeli West-Bank settler leader, propagated by i24 news, and baseless. But there is some newer, inconclusive, evidence to consider.
Walked-back CNN claim / due to David Ben-Zion
See this reporting in the Middle East eye.
Several newspapers, citing an Israeli soldier quoted by Israel’s i24 news channel, reported claims that babies had been beheaded or “had their throats cut”.
Many of the newspapers and websites that ran the story cited reporting by i24 journalist Nicole Zedeck as their main source. Zedeck was among a group of journalists who visited Kfar Aza accompanied by the Israeli military on Tuesday.
In social media posts, Zedeck said “one of the commanders told me they saw babies' heads cut off” and “soldiers told me they believe 40 babies/children were killed”.
i24 News is a a highly-government-aligned, outwards-consumption-oriented, Israeli news channel broadcasting internationally. Within Israel, it has essential zero viewership, nor are i24 reporters known to conduct journalistic work meriting mention. Which is to say I would consider it to be a shallow propaganda outlet. Such perceptions (or realities) regarding the channel have also been discussed in Israeli media (Haaretz; linked story is in Hebrew).
The Gray Zone reports that the source of Zedeck's information was David Ben-Zion, the vice-chairperson of the Shomron regional council of settlements in the 1967-occupied West Bank. He rose to infamy recently for declaring that the Palestinian village of Hawara should be "wiped out".
Ben David’s tweet was ‘liked’ on Twitter by Israel’s-then Finance
Minister Bezalel Smotrich, a move which prompted 22 legal scholars to
call on the Attorney General to open an investigation into the
official for “inducing war crimes.” When Smotrich later echoed Ben
David, calling to “wipe out” Huwara the following month, the US
Department of State condemned his rhetoric as “dangerous.”
But Ben David’s call for collective punishment in Huwara was far from
his only genocidal imprecation against Palestinians. Indeed, he has
used his social media accounts to repeatedly call for war crimes as
well as the “deportation of the [Palestinian] masses.”
“The Palestinian people… [are] an enemy,” Ben David wrote in 2016. “We
can’t change their barbaric DNA.”
As for the phrase "believe babies were killed", which she attributed to unnamed other soldiers does not claim knowledge of such killings. It is also missing the word "behead", while quoted in the context of beheadings - suggesting that the killing was in another form (which is, of course, highly immoral in itself).
The Middle East Eye reporting continues to say that:
Other journalists who visited the site said they had not heard or seen evidence to corroborate the reports.
“During the tour, we didn’t see any evidence of this, and the army spokesperson or commanders also didn’t mention any such incidents,” Oren Ziv, a journalist with +972 Magazine, wrote on social media on Wednesday.
Ziv said journalists were allowed to speak with hundreds of soldiers at the kibbutz without the supervision of the army’s spokesperson team, but none he spoke with mentioned beheaded babies.
Photographer Oren Ziv's tweet.
The state of Israel itself is not currently claiming babies were beheaded. Israel's PM statement, communicated to CNN on Oct 12th, is that
“There have been cases of Hamas militants carrying out beheadings and other ISIS-style atrocities. However, we cannot confirm if the victims were men or women, soldiers or civilians, adults or children,” the official said.
... and CNN describe their attempts to corroborate such claims:
CNN has pored through hundreds of hours of media posted online
attempting to corroborate accounts of atrocities committed by Hamas.
In one video, which CNN determined to be authentic but has not been
able to geolocate, an assailant attacks an injured man with a garden
tool in an attempt to behead him. But CNN has not seen anything that
would appear to confirm the claims of decapitated children.
Claim on CBS and Yahoo / due to a (Not-quite-a-)claim by Yossi Landau
A report by CBS news attributes such a claim to Yossi Landau, a regional director for Zaqa, a first-response NGO in southern Israel. The video of that reporting does not include Mr. Landau; there is a second news item at Yahoo news, which does include his short video segment. Mr. Landau does not recount what he saw personally, but alludes to atrocities rather than listing them: He says "we saw what was done to the families, the children", while shaking his head, indicating that the killings were terrible. He does not mention beheadings. In Israeli media coverage of Landau's experience, beheadings are also not mentioned. Landau does claim, in the story in Hebrew, that Palestinian fighters "watched television while they tormented people ... and then murdered and burnt them". The claim by the Israeli major, Weiss, of beheadings, in the CBS story seems to be the claim which had later been retraced, having originating with David Ben-Zion.
Newer claim by Col. Golan Vach of a single beheading
A new, different, testimony was provided by the commander of the IDF search-and-rescue unit, Col. Golan Vach, On Oct 12th, in a call with (international) journalists, as reported by NBC. Col. Vach said he had “found one baby with his head cut.” On the 14th, he gave a video interview to the Daily Mail, near a house from which he says he had evacuated the bodies of a women and her baby, with the baby having been beheaded. Names, photos, place of burial, details about an autopsy etc. are not mentioned in the interview. I have so far not found mention of his claim in Israeli media. The interview does not go into the question of why the Israeli military walked back the claim regarding beheadings, despite the search-and-rescue unit supposedly having brought in a beheaded baby.
Newer suggestion by head of the Israeli Institute for Forensics
On October 22nd the Jerusalem Post published an article regarding analysis of the bodies of some of the slain Israelis, at the Israeli Institute for Forensics ("Legal Medicine" in literal translation). The report has institute head Noam Kugel comment on the question of beheadings:
Kugel said—if there is one to be found—is that the burned victims likely died from carbon monoxide and soot inhalation before the fire killed them. ... Many bodies, including those of babies, are without heads.
Asked if they were decapitated, Kugel answered yes. Although he admits that, given the circumstances, it’s difficult to ascertain whether they were decapitated before or after death, as well as how they were beheaded, “whether cut off by knife or blown off by RPG,” he
So, Dr. Kugel believes some beheadings are likely to have happened, but with inconclusive evidence.
Since this is a matter of Dr. Kugel's interpretation, rather than his professional claims, it is perhaps not unfair to note than Dr. Kugel is also politically active in the governing Likkud party, where he had established the "Pride in the Likkud" member caucus. He has written in the past decrying solidarity with the Palestinians, claiming it is "anti-semitism in the guise of opposing Israel's crimes".
Regardless; the apparent presence of bodies with heads detached is a explanation of how the claims of beheadings have arisen.
Caveat: The dust has not yet settled and more information regarding casualties may yet surface, which could in theory establish this to have happened. I'm trying to gather the relevant sources of the claim here without fully consolidating everything into a bottom line.