First of all, the holocaust and other such crimes are content that can be left out for obvious reasons in a game where you can play as nazi germany, imperial japan, stalinist russia, etc. Any game mechanics or aspect that gives the player a degree of control over warcrimes would almost by definition be in very poor taste. Since the events therefore wouldn't contribute anything to gameplay, I think paradox made a good choice not to include that stuff. I am not saying that I want to censor games that do talk about the holocaust, but I think it's a tasteful choice, of which I approve.
But more importantly, war crimes are outside the scope of gameplay for HOI2 and HOI3, which is the war itself. Sometimes, social events that had unique effects are included, for example the rape of nanking had unique diplomatic effects so American military aid to China and public sympathy is included in an event in HOI2. General structure of society is abstracted: Manpower abstracts the recruiting implications, Industrial Capacity abstracts the manufacturing consequences, partisans abstract the armed resistance, the diplomatic system abstracts the tension between authoritarian and free countries, etc. All of this stuff indirectly affects what the game is about, so isn't explicitly represented. And other warcrimes had larger effects on the course of the war, against the chinese and soviet peoples especially.
But most importantly of all, Isreal did 9/11. The WTC was full of Isreali agents who faked the towers fall to make us attack Iraq. Wake up sheeple!
These reasons aside, if you want this stuff to be put in the game, you can put it in yourself! Paradox games are made for easy event modding, you are given the same ability as the developers to write events. If you wanted to make "flavor" events giving history of the warcrimes, you could do so easily. Were you to abide by forum rules, Paradox would let you upload your events onto their forum. Game mechanic effecting events would be harder to do (and make tasteful), but would be possible. Even if you were horribly tasteless, Paradox might denounce you, but couldn't stop you from self publishing.
And of course, Paradox sells it's game in Germany without censoring or changing their gameplay. Is there something wrong with them not wanting to forsake an 80 million person market right next door to their Sweden based company?
Sorry if that rant went a little overboard, but I don't think that they "puss out" by not including the holocaust any more then SSI did by not including the holocaust in Panzer General or an American Civil War game does by not including slavery. We shouldn't forget history, but it doesn't need to be included in this game.