Hi there
No great words of wisdom but huge sympathy on this one. We have a three year gap between our dss, but lots of friends who have a two year gap have gone through this. Having a sibling arrive is, of course, a time of huge emotional adjustment, and two year olds find very clear ways of expressing their feelings - hugging, kissing and hitting. At least he is doing it when you are watching, so that you can respond. It's harder when its done sneekily, out of view.
He's also testing your reactions. Is this baby real? Do we really have to be nice to him all of the time? Does mum love him more than me?
I think that you are doing the right thing watching them and separating them if you can't watch. However, there will always be opportunities for ds1 to sneak in a quick smack. And so how you respond is the key. You don't want to overreact, and suggest that the baby is soooo fragile, that you won't have time for ds1, who is probably feeling quite fragile now, anymore. But it's an opportunity to state what is obvious to us - how we have to look after babies and people who are littler than us. I had one friend who ignored it completely and her ds1 did stop hitting the baby of his own accord, when no-one made a fuss, but I certainly couldn't have done that. I would react in the same way as if my ds1 hit anyone else. He'd get an explanation when it first happened and then I would use the naughty step if it continued, making sure that he got lots of praise when behaving well and lots of attention at other times.
As I say, no great words of wisdom, but a few thoughts to start the ball rolling for you.