I would not water proof it, but Thompson's Waterseal latex paint or bee's wax softened with various oil can be made to work.
I have a beaver pelt that was slightly damaged on one side. It is not attractive in that form, so it may wind up waterproofing one of my bags. :grin:
As to attaching the strap, I would make 4 decorative pieces out of leather that will look good with your strap. (Try a few style and use the ugly ones inside where they won't show) Then I would lay one on the strap to act as a support and holder for the strap and outer decoration. Place the strap into position on the bag and another leather piece on the inside to support the bag cloth. Mark the shape of the stitching with a pencil or scribe. Use a stitching wheel to mark where to make your stitching holes. Punch the holes and sew it up. This will give a strong and attractive product. The better your shaping; cutting and stitching of the leather, the better looking the bag will be.
Good luck!
CS