I heard there is a way to steal any item (even while you are being watched) without being attacked in The Elder Scrolls III: Morrowind. How is that possible?
The easiest way would be to stack Chameleon spells and effects (via Alchemy, enchanted items, or a custom spell), until you have a total chameleon value of 100% or more. With 100% Chameleon, you can basically do whatever you want with impunity, as nobody can see you, and unlike invisibility, Chameleon does not break when you interact with the world around you.
See also: UESP Wiki on Chameleon in Morrowind
First of all, please notice that this severely affects game balance, so don't read further if you prefer to play the game as it was intended to.
That said, there is a really sneaky way that works without any spells. Pick up the item of your desire and hold it in your hand. If you were to push it into your inventory now, you would get attacked immediately if someone saw you take their property.
However, instead of moving it in your inventory, open the game menu and save the game. As you reload the game, the item will not be put back to its original place but in your inventory. And since nobody actually watched you stealing, you won't have any trouble.
This exploit was never fixed to my knowledge, and enables you to get seriously powerful items early in the game for free.
Still, notice that people will get suspicious if you wear stolen unique items that belong to them, and likely attack you after a while, so make sure to not gear up in a town with the items you grabbed there. This does not affect common items though, if I remember correctly.
I don't recommend doing this as it's not fun playing when you're cheating because it breaks the balance and kills challenges, but here is what I have found out long ago while playing.
You can jump on the head of a character(you need to balance on it or you'll quickly fall down) or on a high object and enter stealth mode and if you are high enough you will be considered out of npcs' LoS for some reason. Maybe this only works inside buildings and maybe it also works with levitation.
But the easiest way is casting chameleon 100% for 1 second in stealth mode and opening inventory as it pauses the game and then puting things within your reach to your inventory. And be careful with the stealth icon, because if it's not there you might get caught even if supposedly invisible.
What I used to do is I would enchant two items (it could work with spells as well) that I bound to the hotkeys. One would give me instant invisibility and the other one would give me telekinesis (both constant effect). Sometimes you can even go without invisibility if you can go behind a wall where the mob who you are stealing from can not see you.
If you are not in the field of vision of anyone, you can steal anything in your reach, even when the item is visible to its owner.