Well, there is really no "right" order to do stuff. The underground sea has a few battles that you may find overpowering or even impossible even at normal level and leads ultimately to the demon's world (demonis) where the opposition is very tough.
The elves have some encounters that can be won after the dwarves but some should be avoided. However you can get some nice goodies (and units - emerald dragons spring to mind) if you explore there and avoid the tougher mobs. Finish off all battles/areas that you can without sacrificing a lot of your troops - that's the strategy that I follow, and it has proven solid so far. That means that I go back and forth quite a bit to finish off fights that were too hard earlier on, but at least I keep most of my hard to find troops intact
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