A 100-yard exclusion zone was thrown round the garden off Keighley Road, Ovenden, for nearly four hours.
A nearby service station was closed and the A629 Keighley Road was cordoned off and cars diverted.
Police mounted the operation after a resident told them a munitions factory used to stand behind the house.
An Army bomb-disposal unit from Catterick was dispatched.
Ruby Wilson, a pupil at St Catherine's Catholic High School, Holmfield, Halifax, was clearing leaves from the garden at noon when she found the grenade.
She took it to her dad, Johnny, 40, who alerted police. Ruby, who recognised the hand grenade from a picture on her Green Day tee-shirt, said: "I saw what looked like a round metal object and realised it looked like a hand grenade.
"My dad told me to put it down carefully on the ground. But I wasn't very worried because I thought it was too old to be dangerous."
Mr Wilson added: "We were surprised when we found out it was live because the police told us in most cases they are not.
"We were shocked that it had been just outside our house and was capable of exploding."
Mum Helen, 38, said: "To think Ruby walked down the drive with it in her hand...it doesn't bear thinking about."
Mr Wilson added: "Local children in the area said they were going to go looking for more, which is worrying. There have been a few found around Calderdale and children should be warned not to touch anything they find that may be dangerous."
Inspector John Barrett said: "We get a lot of these incidents and sometimes they are genuine and other times they turn out to be just a piece of concrete.
"But you can't be too careful, so we decided to put cordons round the area."
The bomb-disposal unit X-rayed the grenade, believed to date from the Second World War, in a lead box before taking it to playing fields at The Ridings school, Ovenden, where they carried out a controlled explosion.
Motorists were diverted up Nursery Lane and down Cousin Lane to avoid the exclusion zone. Residents were allowed back into their homes around 4pm.