As far as not using iron goes, Daggers can be made of flint...or bone, or antler, or obsidian, or wood, or bronze, or even ice if you're not concerned with reusability.
On the "edged tool / living thing" rule, however, it's interesting that yes, you CAN use a steak knife at dinner, but you can't dig with a shovel. (Performing sacrifices would violate this rule, unless you consider the sacrifice as a special kind of death and therefore sanctioned under the Druidic laws.)
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Volothamp's Comeuppance
Everything you ever needed to know about the entire Baldur's Gate series......except spoilers.
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