It’s been a while since I watched the prequels, but the idea I got was everyone knew the Jedi existed: they were major players in the galactic senate as you referenced. But very few people would ever get to see Jedis use force powers. They might see them brandish a lightsaber. Which to a culture who had space ships, blasters, and the ability to block lightsabers (even if the materials were rare), laser swords might have seemed antiquated and quaint.

And the powers the Jedi seemed to use in populated places the most often were mind powers which aren’t necessarily observable: even Luke watching Obi-Wan mind-trick a stormtrooper was baffled. Seeing Yoda throw ships around might be a thing only a handful of people saw in a century and became little more than legend.

Ooor I might be rationalizing a lot of plot holes without realizing it. :)