Question: I know there is a fallacy in this, but I can't spot it

You probably got a bunch of replies but I'll comment to practice myself. I still don't know if there's a fallacy so here's my messy work:

I would first try to understand what the problem is and then I would try to think of an example that I can dissect better but still make it so that its an acceptable analogy. Person 1 is arguing that bending water is impossible but person 2 says that we don't know that because we can't confirm that. So the idea is, you can't say that X is impossible because there is no way to disconfirm X. We can go further than that and say add a "therefore" in there. Therefore, my belief in X has not being under attack. Using this idea, let's come up with another situation:

Before I go on, we should take note that there's a hidden belief that Person 1 is making: science says that bending water is impossible. So it would be worthwhile to think of an example where science said, in recent times, that something was impossible but turned out to be possible. I couldn't find that but the next best thing is a list of things that science can't answer [1], like why we sleep. This will point out to the idea that science is not an ultimate authority on belief.

Example 1 Mark believes that we sleep because invisible fairies drop sleeping-dust on us. Science has not confirmed that. Therefore, there are no fairies doing that.

If anything, I'm leaning more to Person 1 in your problem committing a fallacy. Not proving something does not mean it's false.

Example 2. Science cannot prove that the earth is not flat (back in the days). Therefore, the earth is flat.

I would expand more on this but I have to go. Maybe later.

[1] http://www.cracked.com/article_19442_8-simple-questions-you-wont-believe-science-cant-answer.html