How to avoid family conflict?

My mom has always been the one to create drama in our lives. I need help in dealing with her. Here's an example: My mom thinks my sister and her husband are lazy and is concerned about her granddaughter So, she buys her granddaughter a new bedset for her birthday. but proceeds to basically order my sister to clean out her daughter's room to prepare for the bed, including getting the floors redone and windows replaced. Of course my sister reacts vehemently,although delayed, that she feels ambushed and like a 2 year old with her mom telling her what to do. Everything blows up after a strong email from my mom to my sister basically again demanding that the room get fixed. Things escalate even more and we are left with my sister saying she won't talk to my mom, and my mom saying she is going to basically step out of all of our lives. Or at least step back. My sister, however, needs my mom to help her take care of her daughter (picks her up after school, etc) and grandma has a really strong relationship with granddaughter. Of course there are many underlying issues (daughter feels disapproval from mom, mom feels no one supports her, amongst other things. I, as the sister and daughter, hear both sides of the story and don't really know what to do. Any ideas?