This paper presents a smart rainwater harvesting (RWH) system to address water scarcity in Palestine. This system aims to improve the water harvesting capacity by using a shared harvesting system at the neighborhood level and digital technology. The presentation of this system is organized as follows: (i) identification of the challenges of the rainwater harvesting at the neighborhood level, (ii) design of the smart RWH system architecture that addresses the challenges identified in the first phase, (iii) realization of a simulation-based reliability analysis for the smart system performance. This methodology was applied to a residential neighborhood in the city of Jenin, Palestine. The main challenges of smart water harvesting included optimizing the shared tank capacity, and the smart control of the water quality and leakage. The smart RWH system architecture design is proposed to imply the crowdsourcing-based and automated-based smart chlorination unit to control and monitor fecal coliform and residual chlorine: screens, filters, and the first flush diverter address RWH turbidity. Water level sensors/meters, water flow sensors/meters, and water leak sensors help detect a water leak and water allocation. The potential time-based reliability (Re) and volumetric reliability (Rv) for the smart RWH system can reach 38% and 41%, respectively. The implication of the smart RWH system with a dual water supply results in full reliability indices (100%). As a result, a zero potable water shortage could be reached for the dual water supply system, compared to 36% for the municipal water supply and 59% for the smart RWH system. Results show that the smart RWH system is efficient in addressing potable water security, especially when combined with a dual water supply system.