Well...the faction is sneaky and cunning and technologically advanced (albeit to no more than base steampunk levels) but unfortunately not super strong in magic. They are entirely capable of constructing something that -looks- innocuous or unpleasant; or maybe drugging someone so they're addle-headed and don't perceive things normally. But auras that induce mass delusions are probably beyond them.
Well, if it's not something they can do, maybe the reason they stick to this specific hideout and such is because they're exploiting something left behind by some other group? That could explain why nobody seems to
know that there's a heavily-occupied fortress there. It would also explain part of why the denizens are so zealous about keeping people away; they don't actually know how to manipulate or control their magical protection, they just know that it works and know how to bring people in on the secret. If even one outsider were to get the secret and then escape, it could ruin their whole protection strategy and force them to waste a ton of resources on much more brute-force means of protection. It's sort of like how someone who gains immortality can actually become
even more obsessed with preserving it than they were with acquiring it in the first place; once you have a fragile power, you want to ensure it will never be taken from you.
Based on what you said, with their roughly-steampunk level of tech, maybe it's a machine, so they can
activate it but they have no idea how it really works, no idea how to repair it, and no ability to "reverse" letting people in on the secret. That could easily take an already kinda-paranoid, isolationist faction and turn it into an utterly absolutist, outsider-phobic group that can't stand even small intrusions into their territory.
If you still think this is just too much or not reasonable, that's alright. I'm mostly just trying to see if there's any way to make a non-amnesia approach work, because I really do feel like you're playing with fire if you attempt it. It's
possible the players might just shrug and move on like you intend them to, but it's also possible that it instead makes them totally obsessed with figuring out what happened and why they can't remember, causing them to force the issue. Maybe you're okay with that, I dunno, but from the sound of it you'd prefer to let this threat percolate for a while, slipping under the radar while still being something the players know
something about.