Neither is correct. "that have know each other" should be "that have known each other". Most authors would put a comma after "that have known each other for a long time".

If those two problems were fixed, #2 would be correct.

Neither example is correct.

• You need to be consistent about the tense of the frame story.
• If the frame story is present tense, you need "we are", "have known", "it is", and "I've".
• If the frame story is past tense, you need "we were", "had known", "it was", and "I'd".
• Most authors would put a comma after "known each other for a long time".

If these problems were fixed, #2 would be correct.

To my (American) ear, the following re-write sounds more natural:

It's as if we were all friends that had known each other for a long time, even though it was the first time we'd met.