Let’s see now…since it’s the birth of magic, I’d go as far as to suggest things like elves and dragons can’t yet exist in the traditional sense of the word. I’d say that more primitive versions of them are around, but they aren’t nearly as refined or powerful as they will be in the future.

For example, instead of dragons, have drakes. Much smaller, only basic intelligence, no breath weapons for defense.

Since it is magic, after all, they could start developing at a very fast rate that would probably never occur in normal evolution. Plus, with no one possessing any real knowledge about magic or how to use it, they’d be just as frightened and confused as anyone else. It would add an interesting twist on the old stereotypes of fantasy races, anyways. (As a note, the race that becomes elves would most likely figure out this newfangled magic thing quicker than others and tap into it to all be immortal pretty boys. XD )

Just my take on how things might work initially.

~DragonHeart~