It seems like an easy mission to me. I took the first town and went on a long journey to clear the territories. Then I attacked the second town. After that, some guy showed up, ran around the first Elven town, and Agrail caught up with him and destroyed him there. Then I gave him the remaining meat from the demon town, after which he easily defeated the third town. There were no problems on Veteran difficulty. Maybe it's harder on Hero difficulty... I didn't use Elves much. In principle, if that guy had decided to attack the first Elven town, it's not certain that he wouldn't have left his bones near the fortress wall – the army there was pretty good, plus a well-developed defender.