I was going to start explaining you what you can (and can’t) do or how hard was this going to be, but a single google query lead me to this excellent thread an Apple forum.
I’m going to quote the relevant part, but I suggest you read it all because there’s more information there and more “why” questions.
We assume you have copied all the music to a Central location (be it a machine or a NAS drive or whatever), so somewhere in the network or your harddrive all your music files (library) are accessible to your wife and you (and theoretically both can write to that location, important when adding files).
It doesn’t matter if they are in different computers or just accounts.
With that in mind:
Each future user of the library should launch iTunes with the Option key held down and Create Library. (A blank one).
With this new iTunes window open, go into iTunes Preferences and UN-check "Keep iTunes Music folder organised" and "Copy files to iTunes Music folder when adding to library".
Then, they must add the music to the Library, selecting the tracks from the folder where all the music is stored (the common place mentioned above), which will import all the tracks into this new Library without copying the files again (hence why step #2).
From this point they can create their own playlists and stuff and they can even check the things they unchecked in step #2, in case they decide to add new tracks (see drawback), you’ll want to have them in the central location.
From this point they both have a Library.XML (stores playlists, tracks location, etc.) and that library.xml points to the physical mp3/4 on the “common location” (tracks are not duplicated as you requested).
DRAWBACK (and the fact that there’s no better solution):
If either user of the library adds new music, regardless of the “keep music organized” and “copy files” checkboxes, the other user(s) are not going to see the changes. The reason being that they are modifying their local copy of the library “xml” (which is where all the playlist and stuff is stored).
If USER1 adds 1 track, USER2 will have to find the track in the library and manually add it to his/her own library.
As you can see, iTunes was not really designed for multiuser.
Go ahead and read the post, it will give you more pros/cons and maybe other ideas.
EDIT: one way to know “what is new” in the library folder (where the music is actually stored) would be to create a smart folder that shows files added in the last “xx” days (for example). :)
It is a tiny bit ugly - but there are formal steps to accomplish exactly what you wish. Home Sharing doesn't work so well when both accounts have completely separate libraries - each in the usual home folder - so that's not a good thing to try.
The best workaround is to agree to store the media in a shared folder. It's more work to add the same music to both libraries - but you both have totally independent backups, playlists, play counts, ratings and apps.
This works really well and you can easily recombine later or split her or your account to another mac or PC any time you choose by taking a copy of the reference files as well as the library organization files.
Best Answer
Go to Home > Music and copy the "iTunes" folder to an external drive.
If you don't have an external drive big enough, you can move it to Macintosh HD > Users > (Your User Name) > Public > Dropbox. (You can copy it directly to your music file from another user, as those folders are only editable when you are in your account).
Login to your user, and move the "iTunes" folder from wherever it is to Home > Music. Open iTunes: your sister's library should be loaded.
PSS: I by no means am advocating the copy of copyrighted content with this post. I imply your music is legally downloaded, and you are moving the library with the intent of organizing it and not duplicating it in any way. Don't do illegal stuff!