A novel all-optical wavelength conversion (AOWC) based on the cascaded sum frequency generation (SFG) and difference frequency generation (DFG) in LiNbO3 waveguides have been theoretically studied. This novel wavelength convertor employing two pump sources places the two input pump wavelengths outside the optical communication band. It is easily realize optimum coupling between punp wavelengths and signal wavelength since their wavelengths are relatively close to each other and the pump wavelenths do not occupy the communication band and the convertor has a characteristic of polarization-insensitive. The theoretical model of the AOWC is established and the coupled-mode equations of optical interaction in waveguide are given out. Then the solutions of coupled-mode equations are in detail deduced step by step and an electric field expression of clear physical insight is obtained. The effects of the device length and the pump powers on the conversion efficiency are analyzed, and it offers theoretical foundation for the optimum frabrication parameters for stable and highly efficient AOWC.