How to create a icon on Ubuntu 16.04 desktop that would start a command line app?

I would suggest you use bash for the Exec key. Try bash -c "~/anaconda2/bin/jupyter notebook --notebook-dir=~/Notebook", or bash -i -c "jupyter notebook --notebook-dir=~/Notebook if you have added the full path to the environmental variables.

Not sure why your entry wouldn't work, but I guess it might be the before "notebook"?

BTW, I wouldn't use a desktop entry for applications like Jupyter Notebook, as I reckon the notebook process still needs to be killed in terminal.