Instead of destroying the Dark Elf city, you cast a spell of "Forgetting," erasing the racial hatred from both sides. You unlock the Whispers of the Dark Elf as a playable race for New Game+ and a unique passive skill: "Void-Touched" (+2 Stealth, +1 Resistance to Light damage).
Many systems balance the sheer power of the dark elf by giving them penalties when operating in direct sunlight.