I think definitely a small sofa and a coffee table facing the fireplace and maybe a chair or 2 with their backs to the kitchen to kind of create a designated space for the sitting area. If not a tv above the mantle, you'll definitely want a piece of art or some kind of focal point.

Tough one. That space now needs to be a travel way, and people will take the path of least resistance, which means of you put anything facing the fireplace people will be walking in front of it, making the space feel like a big aisle. It's hard to tell without measurements, but consider two chairs flanking the fireplace, or facing each other in front of it, which will make people travel behind. Maybe a pouf or small bench as well.
Or you could do a small round dining table there, with a small sitting area over by the French doors.

Additional layout info

Could you move the dining table in front of the fire place (so cozy!) and have two reading/seating areas, one to the left of the kitchen and one in the 16’7” area? Or just a long bench on that wall since it is a passthrough area?

Window wall by suggested sofa is challenging. I hate putting a sofa in front of it but just don’t see another way unless you don’t think one would sit there - then maybe a long no back daybed style bench just for an extra spot to sit when entertaining or for one to read a book/nap by the windows (overpowered dog bed 😂)

Make it both family and guest friendly. Put a small bookcase with art above it where the ladder is. A chair and floor lamp by the triple window there as a reading spot. Chess or small game/puzzle working table and 2-4 chairs at the fireplace. A loveseat on the wall opposite the fireplace. Art 5" above it and 5" above the mantel. When the kids are bigger you can switch to a pool table or foosball table in this area. I would replace the barstools with some backless ones so guests can perch on them easily from any side without pulling or turning them. Looks like you may be mounting a TV by the French doors. If not, I'd add a ficus or fiddle leaf fig there. Once that's all in place I'd find a rug to anchor the fireplace area seating.

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Thank you everyone! You have given me some new ideas to mull over. Much appreciated!

I’d put a sofa against the wall facing the fireplace and add enough comfy chairs to seat you and the kids. Keep a walkway clear for traffic: 2 chairs flanking the fireplace and 2 chairs facing each other near the ends of the sofa should give you seating for six to eight. A narrow coffee table would be useful…people need somewhere to put a drink or a plate. It’s not a large space so do not use furniture with rolled arms or deep back cushions.

It looks like you might have enough room to put a table with a few chairs for games and also something like this for in front of the fireplace:

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