Yes, you can forgive your grandmother. This is what the philosopher, Trudy Govier, calls secondary forgiveness. Even though your grandmother was not directly unjust to you, she was indirectly unjust to you because of what she did to your mother.
You might want to read this essay from Psychology Today: Can You Forgive a Person Who Has Died?
Let us focus on the second question first. According to the philosopher, Trudy Govier, there are distinctions among primary forgiving (in which you were directly hurt by another), secondary forgiving (in which you are resentful because of injustice toward another person about whom you care), and tertiary forgiving (in which you are resentful toward someone who is quite distant from you or a loved one, such as a politician who behaves badly). You are discussing secondary forgiving because you are resentful of another who behaved badly toward your mother. So, yes, you can legitimately work on forgiving this person.
Why is this one so hard? I think it is because your mother likely is going through much pain because of the person’s offense and you are reacting to this deep pain in your mother. Secondary forgiving is not necessarily always more difficult than primary forgiveness. The difficulty depends on the depth of the injustice and the depth of hurt experienced by your loved one and you.
For additional information, see Can You Forgive an Entire Group?
This idea of forgiving in the context of “huge issues” such as the Holocaust is extremely controversial. Some will say that forgiving is not appropriate in this context for a number of reasons (The vast majority of people in the current generation were not in the Holocaust and so it is not their place to offer forgiving; some injustices are so grave as to eliminate the possibility of offering forgiving). Yet, there are people who are on record as offering their own forgiveness to the Nazis. The late Eva Mozes Kor, in the film Forgiving Dr. Mengele, is one example of this. People can forgive groups because when we forgive we do forgive people; groups are made up of people. Thus, if certain people so choose, they can forgive those who instituted Nazism or slavery, as two examples.
Also, the philosopher, Trudy Govier, makes the distinction among primary, secondary, and tertiary forgiving. Primary forgiving is when someone hurts you directly; secondary forgiving occurs when you are hurt because a loved one was hurt (a grandson, then, who is hurt by the death of a grandparent in the Holocaust, can forgive for his own sake, but not forgive on behalf of the grandparent); tertiary forgiving is when you forgive, for example, a public official who is guilty of corruption in another country. In this case, you are not hurt directly and, let us suppose for the sake of this example, none of your relatives were hurt directly. You feel badly, even resentful, and so tertiary forgiving is appropriate.
We need to remember that forgiving is a person’s own choice. Even if everyone else says that injustice X is too severe for anyone to offer forgiveness, we still might be surprised to see that someone steps up and decides to forgive despite popular opinion to the contrary.
For additional information, see Forgiveness Defined.