Brawling is definitely the better skill. Even ignoring the fact that knives and fists are fairly ineffective melee weapons compared to the alternatives you can use with Brawling, Brawling also doubles your number of attacks once you've purchased two levels of it. As a bonus, Brawling stays useful even if you get plenty of ranged weapons and ammo for everyone because you earn double experience points for melee kills.
In general, Wasteland has quite a few nearly-useless skills and a few more, like Knife and Pugilism, that are sub-optimal. For those who would like to avoid the pain of wasting points on bad skills, check out this guide for some suggestions on what to avoid.