A.K.
Mine is like this (3 year old girl, tormenting 17 mo old~ adjusted age 13.5 mo sister, however little sister is extremely tiny and DOES mind). Time outs do not work for us either.
I have been trying something new. I put her to bed for about 10 minutes. I explain what she did wrong and put her in her bed. When the timer rings if she has been good for that entire time on her bed I allow her to get up, then I have her appologize to her sister. This "resetting" often helps. We start new and fresh after she has appologized, and usually its my cue to put down what i'm working on and spend some time playing with my girls.