I read about a similar situation on the www.myitaliancitizenship.com forum. The grandfather was born in Italy and remained there with his mother while his father returned to the U.S. The father eventually became a U.S. citizen and then went back to Italy and brought his wife and son to the U.S. with him. His wife needed to naturalize to become a U.S. citizen, but his son was listed with his father on a U.S. passport. So I think this means that your grandfather came to the U.S. as a U.S. citizen unless your g-grandfather did not list him on his petition.
Now here's where it gets interesting. If your grandfather came to the U.S. from Italy, it may be possible that there is no record of his naturalization with his father. He would have an Italian birth certificate, (which is what the consulate wants to see) so if I were in your position, I would use him as the starting point. Write to the INS under the FOIA, and see if they have any records of his being naturalized. They may indeed have him listed with his father, but then, who knows.
In the meantime you may also want to contact your local NARA office (you can obtain the address here: http://www.archives.gov/genealogy/ )
NARA has the Declaration of Intent, the Petition for Naturalization and the Oath of Allegience. They do not have the actual certificates. However, NARA moves very quickly; if you call or write, you'll get the information in a week or two. If you visit personally, they'll give you the information on the same day.
And don't forget to look into your mom's family as well. That may be easier.
did my grandfather naturalize?
Re: did my grandfather naturalize?
I can't thank you enough for all your help and suggestions. I would be totally clueless without you!
Re: did my grandfather naturalize?
One more question: I am starting to research family history on my mother's side of the family, although they have been in the States for much longer. Does anyone know of any good websites for researching Irish roots (I only just this week found out I'm part Irish!)?

