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Right, he hates elves, but hates Drow even more. You can't kill this guy without losing rep points. Also, if you do kill him all the commoners in the area will be hostile. The only way to get around it is to not kill him, and instead exit & enter the area at other points. If you always enter from the city gates area, you enter from the right instead of the left, so you'll always be able to avoid that guy. There's probably other areas you can do that, but I can't think of them right now.
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