This topic seems to make the rounds periodically, so I'll add my .02 again.
In my campaign Gnomes are a
fantasy parallel to some of the difficulties faced by Jews in Medieval Europe.
They are a people that have lost their homeland so long ago that they no longer have knowelege of exactly where it lies. They were forced from their land in the shadows of prehistory.
After untold decades of wandering, they came to settle in human controlled lands. In the beginning they got along well enough with the humans with which they found themselves living. They were willing to take many of the jobs that the larger folk were loathe to perform. In time, through hard work & thriftiness they began to acquire wealth & some small measure of power.
As their fortunes rose, so did the jealousy of those humans who needed a scapegoat for their own failuers in life. They found an all too easy target in the small newcomers. Soon Gnomes began to face prejudice & persecution. The fact that the Gnomes followed a different spiritual path than their human hosts did them no favors either.
In time the Gnomes were forced from their homes or faced pogroms at the hands of the humans. Those that remained were forced into seperate districts in the city (ghettos), limited in what trades they could undertake (so as to not challenge human monopolies) & found their individual rights severely curtailed.
But the Gnomes were survivors, they weathered the storm of prejudice & in time even found prosperity again. The ghettos became safe-havens for the small folk & those humans foolish enough to go after gnomes on their home-turf found the ghettos to be virtual strongholds as well.
Today in most human cities the gnomes still live in ghettos, but in many this is by choice as much as by force. Their faith is strong & their Clerics' magic stronger yet. They control much of the trade between cities, have a virtual stranglehold on the precious metal/stone market (through shrewd treaties with the Dwarves who refuse to deal with anyone else), and count the finest jewelers & gemcutters among their number.
While in most lands gnomes are not allowed to hold public office or manorial property, they still wield a great deal of power & are a force to be reckoned with (although that power is primarily subtle & behind the scenes).
Despite the security that they are slowly gaining for themselves, many gnomes still dream of once again finding the lost promised land that they still call home.
Recently there is a slow but steadily growing interest in the newly discovered lands beyond the sea....
