The last time I played, I took the first town and the gold mine near it, and immediately headed for the Inferno Castle. I cleared the Dungeon there, built the Castle, and then went for Erivel. They quickly took back their Castle, but didn't immediately go into the Dungeon; only at the end did a hero with a mediocre army arrive, get a little beaten up, and run away. After that, I captured Erivel.
In the third mission, I also fought with Inferno troops. I don't see the point in playing with the Elven army, which we'll have plenty of time to play with, and which has morale problems under the command of Agrael.
Today, I completed this Agrael campaign for the third time, and in the thematic mission "The Ship," if you play in the following order, there are no problems at all: 1) Take the southern Elven town. 2) Agrael immediately goes northwest (up and to the left) and takes the second town. 3) There's a tavern nearby, and two more heroes are hired; it doesn't matter who – troops only flee from Agrael's army, not from the Inferno heroes. Send one to the first town just in case, and the other stays here. 3) Agrael goes east along the road; along the way, there will be Silanna's tree, and archdevils will join. A couple of weak Elven squads will be encountered. 4) He reaches the eastern town and takes it. This leaves the Forest faction with only Erivel. If you like to play longer, you can build it up to green dragons. 5) And now, having protected yourself from the Elves, since the hero from Erivel doesn't leave at all, you can calmly clear the quest-related demonic town in the basement. There are two ways to get there: either from near the starting point, where there's an entrance underground, or from the eastern town, but you'll have to go through a garrison. That's all, basically. Agrael ends up at level 26-27, and probably with any skill build. This time, he didn't have Chaos at all; somewhere, a witch gave him Summoning, which he doesn't really need, except maybe for Phantom. And Darkness skill.
I should note that if you play version 3.0 of the Lords of the Realm, using the corresponding mod to merge campaigns, as I did this time, it's impossible to complete the dragon quest if you have the second upgrade for archers in your army; the scripts don't recognize them. So, I just had to defeat the dragons. And, of course, in Erivel, Agrael takes demonic troops, just for the sake of it... Although you can use elves, but I just don't like them