What is the setting of "The Devil's Arithmetic" by Jane Yolen in Chapters One and Two?

In regards to the story, setting can also refer to the immediate surroundings, social/cultural circumstances, and historical period.

In Chapters One and Two, we learn that Hannah Stern is part of a close-knit Jewish American family in New York City. So, in terms of setting, the author has chosen to focus on the Jewish American culture or social experience in (present-day) New York City. Here, it's noteworthy to point out that the author differentiates between...

In regards to the story, setting can also refer to the immediate surroundings, social/cultural circumstances, and historical period.

In Chapters One and Two, we learn that Hannah Stern is part of a close-knit Jewish American family in New York City. So, in terms of setting, the author has chosen to focus on the Jewish American culture or social experience in (present-day) New York City. Here, it's noteworthy to point out that the author differentiates between the Jewish second-generation experience and the Jewish experience during a specific historical period (World War II) in these two chapters.

In the first chapter, Hannah lets her mother know that she isn't looking forward to the Passover seder at Grandpa Will and Grandma Belle's apartment. She complains that every Passover seder dinner is a repeat of the previous one. Hannah tells her mother that she's tired of "remembering" the Jewish Holocaust experience. 

However, Hannah's mother reminds her that her grandparents find great comfort in their presence during Passover; they value family above all else during such important celebrations. So, the social setting is that of a close-knit Jewish American family in present-day New York City. In Chapter Two, we learn why Hannah doesn't enjoy the Passover family gatherings. Her Grandpa Will seems to be fixated on the Holocaust experience; when Hannah and her family enter her grandparents' apartment, her grandfather is screaming at the TV screen. 

Across the screen marched old photos of Nazi concentration camp victims, corpses stacked like cordwood, and dead-eyed survivors. As the horrible pictures flashed by, a dark voice announced the roll of camps: "Auschwitz, Bergen-Belsen, Chelmno, Dachau . . ."

So, we have a different setting here: World War II. The introduction of this setting (in terms of historical period) foreshadows the parallel universe Hannah is transported to later in the novel. The author further reinforces the tragedy and devastation of the Holocaust experience through a personal story of Hannah's. In Chapter Two, Hannah explains why she dislikes Passover seders at her grandparents. 

Accordingly, at Aaron's bris party (not long after he was born), Hannah experiences one of her grandfather's frightening screaming fits. Grandpa Will became extremely agitated when Hannah writes a string of numbers on the inside of her left arm. At the time, Hannah had thought her grandfather would be pleased by her actions; after all, he had similar numbers on his own left arm. What Hannah doesn't realize was that the numbers on Grandpa Will's arm resulted from his own incarceration during Hitler's reign of terror. 

Hannah reports that her grandfather began screaming the phrase "Malach Ha-mavis" ("Angel of Death") repeatedly after he glimpsed the numbers on Hannah's left arm. So, here, we're introduced to a setting that incorporates the Jewish Holocaust experience during World War II. In all, setting is an important literary device that establishes the mood of the story.