An SLA will not fire if the case is still open unless you are using optimistic locking.
You said you routed step 2 to a workbasket. Depending what Access Roles are assigned to that workbasket assignment It is possible that the user is allowed to perform that workbasket assignment, meaning the case will remain open.
If no Access Role associated to the step 2 workbasket is possessed by the user who submitted step 1, then case would not remain open.
Note the definition of the Assign-Workbasket canPerform Access When rule. The Access Group associated the queued System-Queue-ServiceLevel record would be the Access Group of whoever created the assignment and, in turn, created the SLA record. If the user who created the workbasket assignment is not allowed to perform the assignment you would not expect the SLA to perform it either.
The next question concerns the use of "Advance Flow Action". Is there any Privilege or When rule on this Flow Action that might prevent the SLA from using that Flow Action (assuming the SLA attempts to do so).
To debug, why not substitute an Activity that issues Log-Message steps?