You need a specific bottle of water... where the imp lady is cleaning the kitchen.... you will find it there (IIRC)...
as soon as you have the right bottle of water, the option will appear.
for every level, you can steal 1 item... so for level 3, you will be able to steal 3 quivers of arrows from a person.... It takes a while to reset again... but after a couple of quests, you will be able to steal again....
