The world creator can change the game mode in settings, but all other players have to use a command block or chat to do so as an operator. The game has been updated and tried the following:
Player 1 set Player 2's permissions from Operator back to Member. Wait 5 seconds, then change back to Operator
Change the "Default Player Permission" to Operator, player 2 leave and re-join
Set Operator permissions manually (specifically tagging player2)
Set Operator permissions with an “@ all” command.
Details/information from my situation:
Minecraft Bedrock v26.33
PlayStation 5 and Xbox One
Cheats enabled
Player 2 granted Operator permissions
The Game settings section is unavailable for the split-screen player
Game mode changes continue to work through commands
The issue persists after reassigning permissions and rejoining the world