Is this the pattern?: http://www.theknittinggarden.com/gallery/aug-free-2.htm
If so, the handle is sewn onto the front of the bag, all the way around. Notice the ridge? Then do the same for the back. So the strap makes up the depth of the bag. They don't tell you to attach one end of the strap to the other, I would align one end with the top edge of the bag, sew the strap and pieces together, then sew the strap end on last.