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First, I captured the Elven castle, then descended into the Dungeon, easily captured and developed the Demon castle, and there are no resource problems there. I went back up, took the remaining Elven castles, bypassed all the upgrade locations, and maxed out Agrael's development. I gave the dragons and archers to him; you really need to have a surplus, otherwise they scatter. And for the Demon army, I took the Port. By the way, this is the only mission where you can properly play with Demon troops.