I would cut the handle 1" wide, cut theknot mostly out and glue on the palm swell pieces on both sides, they will be covered with leather. I cut a wedge shaped chunk out of the handle where i want my rest and glue in a square piece of wood that matches the cutout, when the glue cures I shape it to the size I want. If you knot is right where you want a rest you could get rid of all of it with a glued in rest.
Like this;