"Please cut the bread with a knife."
を is the particle used for the thing that the verb is acting upon. In this case, it's the bread. で is the particle that gives context to the verb. Sometimes that context is where, sometimes that context is how.
ともだちをロンドンでみました。- I saw my friend [(in) London].
ことばを日本語でかいた。- I wrote words [(in/using/with) Japanese].
パンをナイフできった。- I cut the bread [(using/with) a knife].
When you say "cut (the bread) with a knife", "knife" is the tool being used to cut, so we say ナイフで切って. If you say "use a knife (to cut the bread)", "knife" is the direct object of the verb, so we say "ナイフを使って".
[If someone disagrees, could they please explain why? ナイフで使って reads to me as "using it as a knife" (something that is not a knife is being used to cut), not "using a knife" (knife is the direct object of the sentence).]
If you wanted to convey the idea that someone should cut the bread with a knife in a conversation, yes. Will the contributors accept it? Possibly, but maybe not because your sentence structure ("please use a knife and cut the bread" - two sentences combined into one) is grammatically different from "please cut the bread with a knife" (one sentence).
で can be used to express:
Location of Action
Range (Period of Time)
In this sentence, the knife is the means by which we cut the bread. See Wasabi: https://www.wasabi-jpn.com/japanese-grammar/particle-de-expressing-supplementary-information/#3