It's not hard to make a felted rabbit for your baby blanket. The first thing you need to do is knit a rectangle swatch about 12 X 8 inches in stockinette stitch. Be sure to use a yarn that will felt (100% animal fiber), and large needles. For this project I used Cascade 128 in Winter White, and size 9 straight needles.
Throw your knitted swatch in the washing machine with a load of laundry and hot water. This will shrink and tighten the stitches so that they won't unravel when cut. You may need to wash it twice if the stitches don't appear tight enough when the first wash cycle is over. While the swatch is being washed, you can cut out the rabbit from my Henry's Blanket pattern.
Once the swatch has been felted (it's OK if it's still damp), lay the paper rabbit on it and secure with any clear tape. The tape is to hold the rabbit in place while you cut around it, so be sure to use a lot. It will need to extend out past the edges of the rabbit template on all sides. Keep applying pieces of tape until all the edges of the template are completely covered by at least one layer of tape.
Then just cut it out. I strongly recommend using small, sharp scissors for this. They're a good investment to have around and will come in handy for other projects.
Go slowly -- be careful --
you'll love the result!
PS) This rabbit would make a great theme for a baby's nursery. Imagine it on curtains, a dust ruffle, a diaper holder, or even stenciled on a wall. Feel free to use it any way you like.