What is the correct way to deal with a sister who insisted on shunning her stepmother and her brother's wife, and asked her siblings to shun them with her, considering herself in the right despite her mother not shunning them?

If your sister accuses your father's wife of sorcery without proof, then she is sinful and unjust. The disruption of your affairs does not necessarily have to be due to sorcery, and it is not permissible to accuse anyone of it until it is proven. If the presence of sorcery is strongly suspected, then you must perform Ruqyah (definition) (Islamic exorcism/healing).

If your brother's wife has unjustly harmed your mother, she should be advised kindly and called to repentance, and to seek forgiveness from your mother. It is permissible to boycott her until she repents, while considering the prevailing interest.

Your sister's stance of boycotting your father's wife and claiming that she will continue to do so until death contradicts Islamic law. Efforts must be made to reconcile relatives, as encouraged by Islamic teachings.

Good companionship should prevail among in-laws, and prayers should be offered to Allah for the improvement of the situation and the reconciliation of hearts. Your younger sister should be advised to return to what is right.