I'm curious -- would this sentence ever be said? And is the English faithful to the Italian here? My current understanding of the tenses suggests that this actually means something like
We (used to believe)/(were believing) that you already knew it (a long time ago).
Would the imperfect and passato remoto really be mixed in one narration like this? Surely, if the "knowing" is in the "remote past" then the "used to believing" must also be in the remote past?
I would like to explain something, maybe it's a bit more understandable. In the imperfect subjunctive there's no "voi sapeste" alone, like in remote past, there's "che voi sapeste", without "che" it's not imperfect subjunctive, but remote past. For an Italian there's no problem, but for a foreigner it's possible getting a bit of confusion.
As you probably know, English is one of the few Western languages that can omit the "that" (or other comjunction) when introducing a subordinate clause.
But although it can be omitted, it is usually not wrong to include it. When doing DL exercises, I usually include it, in part because I like to match up with the "che" in the Italian.
Can someone explain how half of a sentence can be in the remote past and the other half not be? If the sentence were "We believe that you knew it" it would make sense, or even, "We were believing that you knew it." But the sentence as written in English makes no distinction about when "we believed." Why shouldn't it be "Credemmo che lo sapeste gia."?
The verb in the subordinate clause here must be in the imperfect subjunctive, NOT in the remote past. So, if you want to translate the plural English you, you must use "sapeste", and if you want to translate the singular English you, you must use "sapessi".
The word you are suggesting, "sapesti" is the singular you in the remote past (past absolute). But that is not the correct tense to use in the DL sentence here. (See the other comments on this page.)