[John Sabato]

Place the empty magazine in the disassembled grip (photo #1) and watch to see if the holdopen (that you have circled in red) rises as a result of the magazine button... If it does not rise up, then place your palm under the magazine and push up to see if the holdopen also comes up. Your magazine may not be a good fit for your frame.

Also check the notch on the bottom of the breechblock (bolt) to see if it is worn down and not able to grasp the holdopen when it rises.

The World War 2 magazine that you have should function properly in your Luger, including operating the holdopen. It is one of the better magazines made, but because of different tolerances in the placement of the magazine notch, and the magazine latch, it may sit too low to operate the holdopen reliably... In this case try a new magazine.