After the following sequence, go back to the tower and pass through to continue. The shrine to the next town is owned by Rocky, the rich man. He won't let you pass unless you bring him the ruby apple from the north cave. Inside the cave get the capsule monster, Armor Dog. Face the tarantula.
Fire works suprisingly well on it.
Get the apple and take it to Rocky. Percelyte Meet Selan. She will join you to find the treasure sword in the north shrine. There is a hidden passage in one of the walls - look carefully. There are puzzles involving colored cubes.