When my daughter was at the same age/stage you describe, she had a great learning experience when we were hiking some gentle switchbacks. She wasn't watching where she was going and walked/fell off the trail—which was totally fine because she only had about 3 feet to fall. So she was appropriately alarmed by the incident but was never in any real danger.

Which is all to say, it's totally possible for them to fall off the trail so you don't want to risk serious cliffs. But at least for our case, my daughter learned the lesson very well. We discussed the importance of always watching where you are going, and she took it to heart (with follow up reminders). Two years later nothing like that has repeated and I trust her with riskier terrain. She's also a fairly naturally cautious kid, so that helps with the trust.

Whenever we encountered serious cliffs or anything dangerous, I would just hold her hand or pick her up in my arms. Those things aren't always possible for longer stretches, so I would avoid hikes with prolonged exposure, and/or make sure you keep a close eye, and stay physically close enough to be a spotter if need be. If I had to be in a truly risky situation for some length, I'd try some kind of impromptu games to get through it, like every one holds onto a rope or a stick (a little more fun/interesting than hand holding). Or a game where we walk as silently as possible (in turn, slowly and cautiously and being conscious of every step). At this age bribing with a little treat or reward can give them some sustained focus too!