Top Down Bonnet help!

[Jan in CA]

I think this is a cute hat...I prefer the plain multi one at the bottom, and am struggling with the beginning.
http://www.helloyarn.com/topdownbonnet.htm

I managed to do either the figure 8 or turkish CO w/o problems. It's the next part that is frustrating me.

Pattern:
Cast on 36 (40, 44, 48) sts. with figure 8 cast on (half on one needle, half on the other). Join into round. What? I've made a ton of hats, but with the stitches on two needles..??

The bonnet has two sides, the front and back, divided by 2 vertical lines of increases, which you start now:

Round 1. Knit plain (Knit second half of first round only through the back loop to untwist stitches.)
Round 2. Increase round- *k1, m1, k16 (18, 20, 22), m1, k1* Repeat once more. How do you increase when the stitches are on two needles? I've tried and to look right it would need to be increased at the end stitches. Increasing on each side at the end still doesn't work because there is too much gap.



I tried putting the stitches on 3 and 4 needles, but there isn't enough knitting to do this at this point or any point so far anyway. I know these CO methods are used for toe up so socks... PLEASE tell me how this works!