Angel sparing Holtz after Holtz stole Connor proves he's the better man between them. Agree or disagree?
Should I assume that you've read the Dark Horse (sadly) canon comics, specifically the Angel and Faith series, and that this is what inspired you to ask this?
That series was a perfect example exactly how you should not treat your morally grey protagonist, and of what people sometimes refer to as the "Protagonist Privilege". The TV show never, or almost never, made me feel this way, but Christos Gage wrote a series that was not about really exploring the issues of Angel's guilt and struggle for redemption - it was all about the narrative downplaying Angel's horrible acts (especially the newest and particularly damning ones he had just committed in the Buffy comics that preceded it) and having all the good guy characters (especially Faith) straight up tell him over and over - and through him the audience - that Angel is a great guy who deserves to be forgiven, because he feels bad and wants to do good. No ambiguity, no tension over the issue - will be prove himself worthy of redemption? Will the people he hurt (including Buffy) be able to forgive him? No, the series made sure you understood there was never any uncertainty about their protagonist being a good guy, and it consistently portrayed people who had a grudge against him (for things like him having killed their friends and loved ones) as misled and in need of changing their outlook on life.
One of the things that really has stuck in my mind, and one of the low points of the season in my opinion, was a speech by Faith, (IIRC) where she was reassuring Angel that he was a better person than Holtz, because Holtz couldn't let go of his obsession with revenge against Angel.
And that made me incredibly angry. You don't get to murder someone's entire family, traumatize them horrifically, and then be considered a "better" person than them when they don't want to forgive you and when they want revenge. You just don't.
So Angel didn't take revenge against Holtz that Holtz did as revenge for what Angel had done to him? So what? Holtz stealing Connor does not make them even. Don't get me wrong, I consider Holtz a tragic villain, and he considered himself evil by the end, when he was asking Justine to kill him so he could execute his revenge to the end. But Angel is responsible for Holtz becoming the way he became.
And the reason Angel spared Holtz is because Angel was aware of this, and felt guilty for what he had done to Holtz, and for turning him into what he had become. It's not like Angel is generally an incredibly forgiving kind of person. What did he do after Connor was stolen? He tried to strangle Wesley in his hospital bed - and not even impulsively. He was refusing to forgive Wesley (even while knowing Wesley did not intend for Connor to be hurt and was acting out of a misguided concern for the child), and Wesley had to save him from years if not decades or centuries of hellish existence for forgiveness to even be possible. And I loved this and loved Angel for it, for being portrayed as a real, human (!) person, with believable human emotions, not some flawless heroic angel that the comics wanted to tell me he was.
I could also mention the fact that Angel, after getting cursed with having his soul back, wasn't doing any good for almost a century. He tried to get back to Darla but wasn't evil enough for her taste, was mostly roaming around aimlessly, and showed himself to definitely not be the forgiving kind when he left all the people who had lynched him to be devoured by the demon in the hotel. It was only in some 90 years after his re-soulment, after Whistler approached him and told him he had a mission and showed him Buffy, that he started to actively try to redeem himself.
Holtz went through a horrific trauma of finding his family murdered, probably tortured before that (Angel made hints about having raped his wife) and his young daughter turned into a monster - which, as far as he knew and/or believed, as a religious man and a vampire killer, meant he had to kill her, and also made it questionable if she could go to heaven. No surprise he became even more obsessed with finding and killing the perpetrators. We don't know how long he was on Angel's and Darla's trail, but this couldn't have been too long - months to maybe a couple of years? And then he was transported to the present by a demon who offered him a chance of revenge. From his POV, it had not been centuries, it all happened over a relatively short period. Would you be satisfied and said "oh well, I don't need revenge anymore" if someone told you "he's good now"? We also don't see Holtz surrounded by a bunch of people trying to dissuade him from revenge and giving him a taste of normal life and friendship. The people he gathered in LA were those as desperate and traumatized as himself, and none of them seemed to question him. Now, yes, he did get 16 years with Connor, and you could imagine a heartfelt story where raising Connor and being his surrogate dad could heal Holtz and made him decide this was more important than revenge.... but these 16 years were spent in a hell dimension, just him and a child in hell . Not something that seems likely to help anyone's mental health.
In short: even if I accepted the premise of judging "is the perpetrator a better person than their victim if they didn't take revenge after the person they hurt took revenge on them?"!," I don't think we could even compare Angel and Holtz as they were not in the same circumstances.