Pre-heat oven to 425 degrees.
Sift together the flour, baking powder, and salt into a large bowl. Cut in the butter and cream cheese. Pour in the milk and stir just until combined.
Turn out on a floured surface and knead lightly 4 or 5 times. Do not overwork the dough. Roll the dough out on parchment paper into an 8 x 12 inch rectangle.
Transfer dough to a lightly greased (or parchment paper lined) baking sheet. Mark the dough with a knife lengthwise into thirds.
Spread preserves down the center third of the dough. Make diagonal cuts every couple of inches on the outer thirds of the dough. Do nut cut into the preserves. Fold strips over the preserves, first from one side, then from other until you have folded over all the strips of dough.
Bake for 12 - 15 minutes, until dough is fully cooked and lightly browned on top.
Add the powdered sugar, milk, and vanilla to a small bowl. Stir together and drizzle over the coffee cake.