R.
I was in the EXACT same spot as you earlier this summer. I had an offer to return to my old job a couple of years ago, but I turned it down because it was way too time consuming (I'm a school social worker). Even with one child (like you, but I have a 3 yr. old) it would have been too much for me to tackle. So, i decided to wait.
However, this summer a part time job opportunity came up and I grabbed it. I knew the hours were good and I could do both--be at home with my daughter on some days, and work the others. It has proved to be great choice!!! I love it...it's just enough to keep me engaged in my field, and let me have "my time" with my growing daughter.
Economically, I did not need to go back to work, but I felt this was a good time to go back because my daughter is in preschool two days per week (I'm home those days, my mother is with her on the two days I work). So, if school calls, I can be right there in a moments notice. I felt good about that set-up.
To answer your question: "How do you know if you are ready to go back to work?", I just felt it was time. I was looking for something to keep my mind fresh and utilize my professional skills. I could have returned to work a few years ago, but wanted to wait until I knew for certain that I could handle it. It's likely that we will only have one child so I wanted to spend as much time as I could with her when she was small.
There is growing debate (as there is with everything!!!) regarding staying-at-home and going to work. All I can say, is that what's right for you, may not be right for another. We have to meet our individual needs. Being a working parent is not right for all moms. Some thrive, others don't. You need to make a list of all the pros and cons to help you through.
The other thing that my husband and i decided was this: Taking my job did not mean that it was set in stone forever! I went into this with an open mind. Meaning, I knew that if if it didn't "feel right" I knew that I could quit. The only thing in life I am truly invested in is my family. My career really does come second--as much as I love it! So, there's really no harm done in trying it out. It could work out or it couldn't. My philosophy is you won't know until you try!
Good luck.