After meeting with Gestahl and convincing his soldiers to stop the war, you should go to Albrook to meet General Leo.
Go to Albrook
Albrook is southeast of Vector, and southwest of the Imperial Base.
In Albrook, talk to Leo on the ship at the docks. Check the boxes near the dock entrance to find a Warp Stone/Teleport Stone. Then rest in the Inn, which is the easternmost building in town. There will be a cut scene. Afterward, go back to the docks, then when you are ready to leave, talk to Leo. You will sail to Thamasa.
During the trip, talk to General Leo, then watch the cut scene. The next day, talk to General Leo, then to Locke.
After you land on Crescent Island, go northeast to reach Thamasa.
When you arrive in Thamasa, unequip Shadow of everything. Go into the northeast house (to the right of the Elder's house) and talk to the old man (default name: Strago). After he denies knowledge of Espers, his granddaughter (default name: Relm) appears.
After talking to Strago and Relm, rest at the Inn in the northwest of town. You'll be awoken and will learn that Strago's granddaughter Relm is trapped in a burning house.
Go east from the Inn to find the burning house. Talk to Strago. His special ability is Lore. A Lore is a special move that Strago has learned from an enemy. Strago learns a Lore when an enemy first uses the move on him. He can't learn all of the Special Moves in the game. There are specific Lores that he can learn.
After the townspeople try in vain to stop the flames with their magic, you join Strago. When you go inside, equip Strago. Since his Aqua Rake/Aqua Breath Lore is highly effective against the Balloons, I recommend giving him the RunningShoes/Hermes Sandals relic so he can cast Aqua Rake/Aqua Breath as soon as possible.
You can try to avoid the moving flames in order to stay out of battle, but it is difficult to avoid them. Strago can learn the Exploder/Self-Destruct Lore if you allow a Balloon to cast it on him.
Go north until you find two doors. Ignore the first door; there is just an enemy inside. Go through the rightmost door.
From then on, whenever you come to two doors, go through the one on the right to find a chest, then go through the left door to continue.
Eventually you will reach some stairs, and when you go up, you will find a single flame in the middle of the room. Before you walk up to the flame, equip someone with the Shiva Esper, and heal HP and MP if necessary. Equip Strago with an Ice Rod and equip the others with any Ice-elemental weapons you have.
Flame Eater/FlamEatr is weak to Ice, but not to Water, so don't use Aqua Rake/Aqua Breath on it unless it has summoned Balloons or Grenades. It also dies if its MP reaches 0, so you can use Rasp to kill it. You can use the Shiva Esper to deal Ice damage. After it is hit six times, it will cast Safe/Protect and Rflect/Reflect on itself, so you can't use magic on it. But you can still attack with Ice Rods and Ice-elemental weapons. Terra can use Morph/Trance to deal double damage. Locke can steal a Flame Sabre/Flametongue from it.
After the battle, watch the cut scene. Then leave the house and there will be another cut scene. Go west to reach Crescent Cave.