The first new town in Arcatis II (New as in, it wasn't in the first game) Is an Elven village called Melodale. They live a bit like Hobbits, and have never gotten along well with humans.

I plan to explain more about their history, and the main villain's past in the third game, which might be called "Arcatis III: The War of Arcatis" See a pattern in the names yet?

When the player first visits the town, no one there likes them. Some so far undecided event happens which requires the player to save an Elf or two, maybe the whole town, causing some Elves to start rethinking their behavior towards Humans. The Elves' relationship with Humans should, at first, seem like a subplot, but I plan to give it a much bigger part in the third game, and the legend of Arcatis.