This must be very hurtful for you, seeing both your beloved brothers so unhappy.
Firstly, as you say, there's no changing your sister in law and that's something you and the younger brother have to accept.
Secondly, the brother married to the lady for 32 years, may be aware she has some emotional or mental issues. This may also be a reason why she wants you all at a distance.
Thirdly, has your elder brother actually said he wants you to mediate? Maybe, for a quiet life, he's happy with this situation. In which case, your 'mediation' may be seen as interference.
If this were me and the brothers would agree, I'd talk separately to them, starting with the elder.
Ask him how he feels about his wife's rejection and if he knows why.
And if he wants you to do something to bring him and his brother closer, as his sibling is so very upset about the whole thing.
You may get a straight, 'No thnaks, we're fine' in which case, that's the answer. Leave it be.
If he says he'd like to be closer to his brother but his wife objects, then suggest they meet privately, without telling her. That's not sneaky, especially if she's emotionally fragile, it's just good practice.
These meetings, perhaps for the occasional lunch, would be on the clear understanding that from respect, his wife is not to be criticied.
This is only to bring the brother closer and criticism will alienate them both.
The younger brother must absolutely agree to this, especially as you all know he'd been wasting his time and upsetting his brother even more.
I hope this works out; they have trusted you to mediate before and maybe will again but it must be their choice.