Here's another thought. I work from home most of the time myself, so one thing you can offer is that because he's offering you flexible hours, you will work flexible hours - as in, once your kids are in bed, you can finish up projects, do paperwork, that kind of thing. Obviously if your work involves interacting with clients, then you'll have to schedule that at your baby's naptimes (and/or have a sitter come in for an hour or two a day and schedule your client/phone work during that time).
I'd recommend, as some others have, that you pitch this idea to your boss on a trial basis - "let's try it for 30 days, checking in 2-3 times weekly, and see how it goes. If it's not working after 30 days, we will both have the chance to re-assess."
Personally, I've worked from home for many years, and I've found I can get about 4 times the amount of work done in about half the time I would get it done in the office. There are SO many interruptions in the average office (phones ringing, co-workers who want to chit-chat, deliveries being made, field personnel wandering through...). Yet, some bosses are still "old school" and can't fathom the idea of someone working and getting a lot done without the boss being able to observe it. That's why a "trial period" would be a good idea, in my opinion. You can prove to your boss that it will work and you'll be able to get your work done.
Good luck!