Balasiel can be tricky to find. Start by going to Watchdog Alley at (F-6). You will see an NPC named Celyddon, walk west from him into the stairwell. Follow it upward, and take your first left (do not walk out on the wooden walkway). Follow those stairs up, then they will dip back down, and curve around to Balasiel.
Balasiel: Take up a sword, my friend. I'll talk to you when you do, and no sooner.
Balasiel: Friend, listen to me. It is not cogs nor levers nor even the mightiest of magicks that protect this kingdom of San d'Oria. No! We Elvaan live by the power of the sword alone. Our blades defend our borders. If you would strengthen your sword arm and learn something of the art, then accept my challenge. What say you? Accept his challenge?
Balasiel: As you wish. Come back when you've grown a spine.≺Prompt≻
Balasiel: Ah, I see you have a stout heart. Now listen well! Go to King Ranperre's Tomb and bring back Revival Tree Root. How, you ask? Use your head. Now begone!
Balasiel: Ah, I see I was right about you. You've proved your mettle today. Further tempering may forge you into a hero among adventurers.