Think for a moment about what this "compromise" entails.
1) Your wife will be deceiving her sibling, and colluding with their parents to undertake this deception. I wouldn't want to be on the receiving end of such a deception, and I doubt that many people would, regardless of the more noble intentions (keeping family together) behind it.
2) By giving in to the sibling's demands for reinstatement in order to have a relationship, the sibling and his/her unreasonable demands are being satisfied. This will open the door to further unreasonable demands, requiring more and more acquiescence from your wife. It will be like negotiating with a terrorist, with the relationship always being threatened unless your wife complies with their demands, never the other way around. Does she really want to be subjected to that kind of controlling behaviour? Does she really want a relationship where her sibling always gets what they want, and she has to go along with it if she wants to continue having a relationship with them?
Suppose this wasn't about the JWs. Suppose her relatives converted to Islam. Suppose they said they would no longer eat pork. That's fine, they don't serve you pork in their home and you courteously offered them something else when they are guests in your home. But what if things started getting more extreme? What if they expected your wife to cover her head when she visited their house? What if they expected her to cover her head when they came to visit your house? What if they then expected her to cover her head when she was out in public with them? What if they expected her to cover her head in public all the time, and in the privacy of your own home all the time?
This sense of the "believers" feeling they have the right to be accommodated at every turn, and to pressure conformity to their extreme standards and disregard the standards and fundamental rights and freedoms of other people is completely unreasonable. Why anyone would cater or pander to these control freaks is beyond me.