“…did the Messenger of Allah ﷺ return their greeting when they would offer him the salām while he was praying?’ He replied, ‘Like this,’ and he spread out his palm. Jaʿfar ibn ʿAwn likewise spread out his palm, turning its inner side downward and its back upward.”

It was recorded by Abū Dāwūd (927) with a good chain, and by the remaining compilers of the Sunan.
Al-Tirmidhī said (2/204): “A ḥasan ṣaḥīḥ ḥadith.”
The report also has another route in the Musnad (2/30) and elsewhere from Ibn ʿUmar, whose chain is authentic according to the criteria of the two Shaykhs (al-Bukhārī and Muslim).

Imām Aḥmad ibn Ḥanbal and Isḥāq ibn Rāhawayh both adopted this ḥadith as evidence. Al-Marwazī states in al-Masāʾil (p. 22):

“I asked (meaning Imām Aḥmad), ‘May one greet a group with the salām while they are praying?’ He answered, ‘Yes,’ and he cited the story of Bilāl: when Ibn ʿUmar asked him how the Prophet ﷺ would return the greeting, he said, ‘He would gesture.’ Isḥāq said: ‘Exactly as he reported.’”

Some of the leading Mālikī scholars held the same. Qāḍī Abū Bakr ibn al-ʿArabī writes in al-ʿĀriḍah (2/162):

“A gesture in prayer may be made either to return the salām for something that occurs within the prayer itself, or because a need arises for the person praying. If it is to return the salām, then there are sound narrations regarding it, such as the Prophet’s practice at Qubāʾ and elsewhere. I once sat in the circle of al-Ṭurṭūshī; we discussed this issue, cited the ḥadith, and produced it as evidence. A layman at the far end of the gathering stood up and said, ‘Perhaps he was only telling them to keep quiet so they would not distract him!’ We were amazed at his insight! Later I came to see that the narrator’s understanding—that the gesture was to return the salām—is decisive in this matter, as we have clarified in the principles of jurisprudence.”