Now that you are all dried off and finished mourning the poor Hydra it is time to heed the lone soldier's words and find out all you can about the Fire Crystal. This means heading back to Walz Castle! Go and see the King, who is resting in his chambers.
The King of Walz tells the four of the city of Karnak and the Fire Crystal. It just so happens that Karnak is also using a machine to enhance the powers of the Crystal, with a meteorite also fallen there! Go and talk to the commoners to learn more information and you will learn that there happens to be an injured Karnak soldier resting in the castle. Other tidbits of information gathered at the castle and in town are that Reina should head back to Tycoon Castle for they should be worried about her by now; and you can find Garula wandering about town again.
If you haven't already put the hints together by now, then let me help enlighten you: You are required to go to Walz Meteor and warp to the Karnak Meteor Before you go and warp to Karnak, there are a few thing to do here first. First, finish buying all of the spells at the Town of Walz that you didn't get yet, and, if you like using the Berserker, pick up the Battle Axe as well.
After you finish here, hop the dragon and head ALL the way back to Tycoon Castle (for those of you who need extra help getting there, view the World Map). The castle is near where the very first meteor crashed into the ground.
Once you find the place, head straight up to find the Chancellor. The Chancellor jumps for joy to see Reina safe and returned to her country. Much talk follows about how Reina believes the King to still be alive and how she will not return until the world is safe and she has found him. She decides to spend the night, and one of the pattented middle-of-the-night-plot-sequences follows.
Reina wakes up and walks out to the balcony to find Faris there. [Note the superb music]. Reina suspects Faris to be her big sister becuase of the pendant she is wearing, but Faris laughs it off and walks away. Next, Bartz is awakened by his friends. From here, follow the path to get to the first floor (a jar to the right has a potion for you). Go through the next door and then proceed down to go outside to the courtyard. Head to the left and take the staircase, then head through the stone archway, and use the door there. In the small room, hit the switch on the upper wall to open up a new passage (don't forget that the Thief's 'Secret' ability allows to see these hidden passages).
Follow the new path to find the Chancellor in a tiny room with several chests. Talk to him and you'll get the Healing Staff (This weapon is an extremely useful upgrade for your White Mage during the next few chapters - it will heal whoever the target is by about 300 HP!). Don't forget to pick up the the Moster Bell, the Katana, and the Shuriken here also. Go back outside to the courtyard, and head back into the castle. Go straight up into the King's Hall, and take the upper-right door to reach a room filled with pots on the 4th floor (there are four goodies here for you - get them all). If you keep going up you will find the Dragon's Tower and cue one of the most scenic places in the game.
The upper-left door in King's Hall leads to Reina's room and the King's Chmabers. A disgruntled guard won't let you into the chambers. Notice the book in there: you'll have to come back later to get it. Go back to the Foyer (the big room before King's Hall) and use the right-most door to reach a person called Jenica who tells of Reina's older sister, Salsa, who was lost at sea during a bad storm. There are also some goodies to find in here, four of them to be precise.
Lastly, from the courtyard, you can head to the right to find a partially hidden passage that leads to a Storehouse. Unfortunately, the Lone Wolf seems to have emptied all the tresures here. I always release him because I'm soft hearted, and I've never found out what treasures you can get in here.