Demon castle - Defeat the Demon girl

[Gatts]

You absolutely should put for this battle both black and red dragons away, but what to recruit instead?

If you could manage the problem that dwarves and elves dislike each other - my advise would be canoneers and giants.

If the morale loss it not of your liking than:
Cyclops (resistant to fire, physical and deal huge damage)
Inquisitors (ressurect, but not very good archers, still very handy for keeping your green dragons up with lives - when you use GIFT, you are sorted)

Also you can try fire spiders (fast, huge damage, resistant to fire)

both hunters/elven archers are fine btw - keep them

and I would advise as well - return to demon lands after you clear undead... demons are stronger than undead (Karador included) IMHO