We'll create an incised image on the blade using a copy of the ornament.

Create three small duplicates that are about 1/2 the height of the blade and arrange them about 1 pixel down and 1 pixel apart. (I've made the three examples much bigger to make it easier for you to see what we are doing).

Apply the three solid color fills shown on the right. Select the middle ornament and bring it to the front (Ctrl f). This creates a lighter and darker version which act as a highlight and shadow edge. Place this over the blade and group with the blade elements.

Group the handle and blade elements. Rotate the chisel about 20 degrees anti-clockwise.

Select the Shadow Tool and drag downwards on the chisel to add a shadow. Move the Shadow Transparency slider on the Infobar to about 60 to make the shadow darker.

Place the chisel over the carved wood.