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I would use a pin-vise or an old eggbeater style drill. Drilling through an 1/8 of walnut with a 1/16 bit is not that hard with a pin vise.

Pin Vises for Jewelers: Widget Supply

A chisel...

Get a coping saw and get a package of extra blades, there is nothing worse than dull tools. Maybe you can rig up some sort of birds mouth/ V - board and a bench hook. You can be up and running in...