Single power supply for my project?

[adafruit_support_bill]

That should be possible. The LED circuit in the button is entirely separate from the switch connections.

[xentrica]

I plan on using two one watt led's wired in parallel to my arduino. I want to use pwm to control the brightness. That supplies 5v to the led's, where they are forward voltage 3.5v. What is the best way for me to handle this?

[adafruit_support_bill]

1 watt leds draw much more current than you can safely pull from an Arduino pin. You can use a transistor to switch the current.

The circuit would be similar to the one in lesson 13 for driving a motor. You can omit the diode and replace the motor with your LED and current-limiting resistor.
https://learn.adafruit.com/adafruit-ard ... s/overview