The ghetto was ruled by neither German or Jew. How does this describe the Nazi regime in Sighet?

The exact line from Elie Wiesel's Night is:

The ghetto was ruled by neither German nor Jew; it was ruled by delusion.

This statement is meant to be taken figuratively, not literally. The Germans were, of course, in overall charge of the ghetto, exercising the power of life and death over everyone forced to lived there. In turn, the Nazis appointed a Jewish Council to carry out the day-to-day administration of the ghetto. But this wasn't about giving Jews any real power over their own lives; it was simply a sinister ploy by the Nazis to make it easier to control the Jewish population in preparation for its subsequent deportation to Auschwitz.
What Wiesel is referring to, in my opinion, is the prevailing spirit within the ghetto. Effectively, the Jews are living in denial as to the full scale of the horrors that the Nazis are inflicting upon them. It is a common human reaction for people to be in denial when something terrible is happening to them. It's a subconscious way of dealing with something too horrific to comprehend. Many people in the ghetto think that this is just a passing phase and that everything will eventually work out for the best. As the Jews now have nothing left, they cling to their delusions ever more tenaciously, hoping that they will somehow get through this terrible ordeal in the end.