Is raising the hands during the takbirat al-ihram in prayer essential? What are the consequences of not raising them? And did the Prophet raise them because of the disbeliever who hid a knife under his armpit?

Raising the hands during the takbīrat al-iḥrām (the opening Allahu Akbar) is a recommended sunnah by consensus, not an obligation. The prayer is not invalidated by omitting it, but the one who omits it misses out on a great good by abandoning a sunnah of the Messenger of Allah, may Allah bless him and grant him peace. The Prophet, may Allah bless him and grant him peace, consistently raised his hands during the takbīrat al-iḥrām, and when bowing and rising from it, and when standing up from the second rakʿah. This has been narrated by more than twenty Companions, including Ibn ʿUmar, Abu Hurayrah, and Abu Ḥumayd al-Sāʿidī. Therefore, a Muslim should emulate the sunnah of the Prophet, may Allah bless him and grant him peace.