Combine warm milk, active dry yeast, and sugar in a bowl. Let sit for 10-15 minutes until frothy.

Mix cream cheese, sugar, and vanilla extract in another bowl until smooth and creamy. Set aside.

In a large bowl, whisk together flour and remaining sugar. Create a well and add activated yeast mixture, melted butter, egg yolks, and water. Mix into a rough dough and knead for 5-7 minutes until smooth.

Place the kneaded dough in a greased bowl. Cover and let rise in a warm area for about 1 hour or until doubled in size.

Punch down the dough and divide into 15-16 pieces, rolling each into a ball. Arrange on lined baking sheets.

Make small indentations in each dough ball and spoon in the cream cheese filling. Optionally, top with jam. Let rise for another 30 minutes to 1 hour.

Preheat oven to 350°F (175°C). Brush each Danish with egg wash and sprinkle with streusel topping.

Bake for about 20 minutes until golden brown. Transfer to a wire rack to cool.