In a small saucepan, heat the milk and butter over medium heat until the butter melts. Remove from heat and let it cool to about 110°F (43°C).

In a small bowl, combine the warm milk-butter mixture with granulated sugar. Stir in the active dry yeast and let it sit for 5-10 minutes until bubbly.

In a large bowl, combine flour and salt. Make a well in the center and add the yeast mixture, eggs, and vanilla extract. Mix until a dough forms.

Knead the dough on a floured surface for 8-10 minutes until smooth and elastic. Place in a greased bowl, cover with a towel, and let rise for 1-2 hours or until doubled in size.

In a small bowl, mix together brown sugar and cinnamon.

Punch the dough down, then roll it into a 14×9 inch rectangle on a floured surface. Spread softened butter on the dough, then sprinkle evenly with cinnamon sugar. Add chocolate chips if desired.

Roll the dough tightly into a log and slice it lengthwise. Twist the halves together to form a braid and tuck the ends under to seal.

Place the babka in a greased loaf pan, cover, and let it rise for 30-60 minutes.

Preheat oven to 350°F (175°C). Whisk together egg and water for the egg wash, then brush it over the top of the babka.

Bake for 30-35 minutes or until golden brown. Cool for 10 minutes in the pan, then transfer to a wire rack to cool completely.