In a large bowl, cream shortening and sugar until light and fluffy. Beat in egg and vanilla. Combine the dry ingredients and gradually add to creamed mixture.
Roll heaping teaspoonfuls of dough into balls; press a hazelnut into each and reshape balls. Place 2 in. apart on ungreased baking sheets.
Bake at 375° for 12-15 minutes or until lightly browned. Cool on wire racks. In a bowl, combine the confectioners' sugar, water and vanilla until smooth; dip tops of cookies in glaze. Sprinkle with sugar.