Is your brother older and living on her own (out of your parents' house)? The reason I'm asking is that the tradition of having the parents of the groom pay for the rehearsal dinner comes from a tradition of the bride going from living with Mom and Dad to being married. As more and more couples are getting married at older ages, the tradition is changing so that the couple getting married is shouldering more of the financial burden and their parents are helping as they are able/interested.
In the situation you described, I would recommend doing what my Dad did. My brother and I got married within 6 months of each other. My Dad told each of us, "I'll give you $X toward your wedding. You can use it however you choose. If there's anything leftover, keep it. If you use it all, don't ask for more." My father's gift paid for most of my modest wedding and probably didn't cover the tab for the open bar at my brother's wedding.
If your parents are being pressured to spend money they can't afford and/or have other children whom they would like to help with wedding expenses at a later date, the best thing for them would be sit down on their own and figure out how much $ they can contribute to expenses, then tell brother, "We'll contribute $X." Let brother and his fiancee decide what they want to do (rehearsal dinner, etc..) with that money.
BTW, DH and I thought so highly of Dad's way of doing things that that is how we'll do it when our kids are older.
We also served the food on paper products (in our wedding colors). We also purchased some wine and beer. Very inexpensive and everyone enjoyed it.
