Probably the best method to bring up pious children is to have them exposed to a pious Islamic lifestyle in each one of the centers of education he or she is exposed to: the home, the school, and the community.
Living in a non Muslim country (and many times in Muslim countries), it is difficult to find a strong Islamic community to live in. Likewise, good Islamic schools are not always easy to come by either. Hence, the home is the last resort to disseminate the wisdoms, piety and good traits of Islam to a growing child. This is possibly the only place where the parents have complete control and improve the atmosphere to make it an Islamic one. If parents cannot provide at least a good Islamic atmosphere for their children at home then the children are in crises.
A child learns best through emulation and example, hence, parent's need to live their lives according to the best Islamic behavior possible at all times. A valuable work on this subject is Shaykh 'Alawan's "Bringing up Children in Islam (available at www.al-rashad.com) which deals with most of what a parents need for such a pious upbringing. There are also other more recent works dealing specifically with bringing up children in the west.
As you have correctly pointed out, the du'a' of the mother (and father) is extremely important and valuable. According to his biographers, Imam Bukhari was cured from his blindness in infancy through the ardent du'as of his mother. He later became one of the most well known scholars Islam and his hadith compilation the most authenticated after the Qur'an.
A good dua to read is one from the Qur'an:
"Rabbana hablana min azwajina wa dhurriyatina qurrata a'yun, wa j'alna lil muttaqina imama"
O Allah grant us from our spouses and children such who are a source of the coolness of our eyes, and make the Imams for the righteous.