I wouldn't view it as cheating, but I'd view it as pretty gross behaviour.
Sitting on his hands because he'd been told to is one thing (and probably quite standard). If, in addition to the rule, he felt he had to sit on his hands as he would have otherwise been tempted to grope the dancer, that's crossing a line big time. What did he actually say?
I'm really surprised this hasn't come up before, as normally over the course of 12 years there would be someone else having a stag do - actually, there would be DH himself having a stag do? - giving rising to the usual conversation on boundaries.
For me, I think strip clubs are a bit seedy, and private dances are especially gross, but I wouldn't view them as cheating. But you can't assume how the other person would feel - it's a conversation you need to have about your boundaries.
I would forgive in this instance as he hasn't actually touched another woman/had an emotional affair with another woman, he's 'fessed up voluntarily, and it's been a communication balls up on both sides. He hasn't tried to hide it, because he didn't think it would be an issue.
However, I would find him less attractive going forwards. I can understand how easy it is to be peer pressured into going along with this shit, but that just shows a weak character, and I don't find that an attractive trait.
I think this is something you can potentially work through. And as you have kids, it's worth trying. If you define your boundaries and he breaks them again, then it's a case of LTB. But he didn't know, and as obvious as they are to you, I don't think they're universal.
Separately, if you are feeling vulnerable having given birth not so long ago, that's something you both need to work on. You feel how you feel about this whole episode, and needs to accept that, and work on making you feel special and loved and attractive again. And I don't mean sex, if that's not something you're ready for yet. I mean, kisses, cuddles, holding hands, giving you compliments - making you feel like his number one.
He might not have realised he had crossed a boundary for you, but he should be able to see now the impact on you, and he should want to help you feel better about it.