As Slowpoke suggests, if we have a better idea of your plans we can be more precise in recommendations.
That said, it would be pretty difficult to imagine a scenario where a rental car would be a better choice. The public transport in the country is positively brilliant, and often the best views are from the trains (not to mention lifts and gondolas). Everyone can watch the gorgeous scenery go by without worrying about driving. Everything runs on time, is clean, safe, and a big part of the fun of the country.
In particular traffic regulations can be problematic as they are VERY strictly enforced. Speed limits change frequently with little warning and are enforced via camera and instant ticket. Most people don't even know they have been ticketed until they get the bill in the mail. For example, one of my very good friends who is an extremely cautious driver returned back to the US after a month in Switzerland with a car. He was soon on the receiving end of nearly $1,000 USD in fines for multiple "speeding" offenses, often only 1 or 2 km faster than the posted limit (which he rarely saw signs for and had no idea he was speeding.) Add in the cost and huge hassle of a car, parking (very difficult to find in the cities and very expensive), and petrol ($8/gallon) and you will find a car to be a very expensive and aggravating idea.
Add to this the fact that the most scenic places in the country are largely inaccessible by car and you begin to see how, for a hiking holiday, a rental car becomes an expensive and useless piece of sculpture that will spend a lot of time in car parks. Even if you were to spend lots of time in cities, know that many of the cities were built long before the advent of cars and are very auto-unfriendly -- lots of narrow and twisty roads, very little parking, etc.
A big plus for you is the age your children will be at the time of your trip. If the parents purchase either a Swiss Pass or Half Fare Card (the latter being my strong recommendation), children under the age of 16 will travel for free with one or more parents with the free, upon-request Family Card. Use the links on this site to explore the various transportation cards. I recommend the HFC because it is good for an entire month (most other passes are good for max 8 days) and is almost always the very best value for the money.
If you would like more information about hiking in the Bernese Oberland area (in my opinion, the most gorgeous area of the country) please see a series of PDFs www.myswissalps.com/fo rum/topic/tips-about-wengen-and-the-jungfrau-region-by-kim
This will give you lots of recommendations on hikes, transport, things to see, and so on.