This research examines the role of sustainable knowledge sharing in enhancing service innovation among Palestinian banks, and it explores the mediating roles of employee engagement and meaningful work. The study sample consisted of 366 employees from various banks, who were surveyed using a structured questionnaire. Results from CFA and MGA reveal a significant Hand direct positive path from sustainable Knowledge Sharing to service innovation at a 0.52 level. In addition, the results reveal important indirect effects that are paths through which employee engagement and meaningful work together explain a substantial portion of total influence. The structural model presents good fit indices, explaining service innovation at 85.8%, employee engagement at 79.7%, and relevant work at 67.9%. These trends hold for both public and private banks. The mediating processes show that the engaged employee and meaningful work experience serve as the vital routes through which sustainable Knowledge Sharing enhances organizational innovative capability, addressing an obvious gap in the literature of innovation of Palestinian banking services. This study illustrates how Knowledge Sharing—underpinned by a committed staff and rewarding work surroundings—is associated with service innovation. The results provide pragmatic considerations for bank managers in order to enhance knowledge-sharing routines, raise workers’ involvement, and develop purposive, innovative work climates, which can be applicable regardless of variations in banking ownership forms. Although there are limitations inherent in the cross-sectional approach and its focus on a particular geographic setting, this study has theoretical implications. It provides practical suggestions for the adoption of innovation strategies within the banking industry of developing countries.