Looking for advice on calming aggression in dogs. Can you help?

My daughter has two dogs. The older she got from a shelter when she was about two months old, female, about 5 years old, slight in build about 30 lbs, what we call a central Texas gutter hound; mixed indeterminate breed. The younger came into the household as a six week old pup about a year ago. She is also female, 14 months old now, muscular, about 45 – 50 lbs, Mother was a bluetick hound, father also a hound unknown breed.

The older female was the dominant one, until last weekend. Now the younger has become very aggressive in trying to assert dominance; to the point of drawing blood. They cannot be left alone without fighting each other. The older dog is out matched in size and weight but that does not stop them from biting and clawing. Even when put in separate crates the crates have to be separated otherwise they will try to get at each other through the cages, snarling, barking, snapping.
Additional info. Both the parents of the younger dog are now dead. The father was shot by a neighbor (in a rural area where they lived, not in my daughters neighborhood) while attacking the neighbors dog shortly before the pups were born. A few months later the mother was put down for participating in a mauling of another neighborhood dog, she was one of several involved but the hardest one to get control of during the incident; snapping and biting at the people breaking it up. The owner of the small dog that was mauled insisted she be put to sleep as a condition to not pressing charges.
Because of this background and the larger size of the young dog, my daughter fears for her older dog. The younger one is stubborn and disinterested but is teachable with intense repetition and up to this point has been fine. It has been so bad that my daughter is considering finding a new home for the young dog, one that does not have another dog.
Yesterday we tried positive reinforcement with praise and treats moving both dogs close to each other (both on leashes). We could get them to within striking distance and with constant distraction could control them most of the time. The few times they focused on each other it was always the young one who growled first and lunged which got a reaction from the older. The older seemed content to sit without incident until challenged.
Any Suggestions?

(sorry for the length)