After doing a quick sketch, I scanned the image and opened it up in Photoshop where I proceeded to clean it up a bit.

After cleaning it up a little, but not too much (I love the small dots and scratches that makes the image feel grittier, at least in this particular image). I then proceeded to export the paths I made in Photoshop to Illustrator, where I further enhanced the lines by cleaning up unwanted irregularities.

In Illustrator, I made some simple gradients, to keep the image clean and childish.

I added a black shadow on the layer at the back, to make the image stand out in preparation for the background.

I made an Art Decoish background to enhance the stance of the little rabbit, making it seem a bit more powerful than it is.

The finished image.