Thank you for the replies so far!
I took a picture of the diagram, and I'm also attaching what I hope is a clearer picture of the terminals on the magneto. In about the bottom center of the picture, you'll see a pair of red wires connected to a small screw terminal (the wires are kind of coiled up). I'm pretty sure I have that connected right. But a little higher up, there is a green wire connected to one of the larger terminals. This is the one I'm not sure about. There are two terminals there, as you'll see. I'm just wondering if I might have the wire connected to the wrong terminal. Unfortunately, I can't use the other telephone as a guide because the original wiring has been tampered with.
I found terminals marked "L1" and "L2." I hooked up a multimeter to the terminals and cranked the generator, and it measured about 70 volts AC! That's enough to give a nasty little zap!
It also means that the current from the magneto is getting to the terminals where the phone line would be connected, but I'm still not sure if I connected the magneto right.
The "paper bag" is actually a folded up piece of paper with simple instructions for how to connect two of the phones together. I got REALLY lucky with this antique phone, considering all the original stuff that came with it! I'll attach a picture of the paper too. This is actually why I decided I want to just have the phones have their original circuit, instead of trying to rewire them to work on the modern phone network. (I REALLY wish someone hadn't messed with the other telephone).