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You can also move archers closer, but not right next to the enemy. If the dragon wants to attack someone, let it be them. I noticed that they somehow recovered every turn. I also attacked with vampires, but only when I could use the ability that activates when the enemy doesn't attack.
I attacked with the rest from a distance, positioning them so that the distance between the units on the back line was maximized.
As for magic, I cast Weakness and Ruin on the dragon, and Restoration on my own units.