Frankly I never found it worth it because in general you can either protect your war front from incursion or react quickly enough to regain any lost resources along with punishing those who stole from you. One of the more interesting design decisions made by Triumph Studios was to have an emphasis on race relations. Unfortunately, this is too good of a solution, since if you don't cleanse, then you have to keep this large garrison there forever to keep the city. Not only that, even if you keep the city and try to generate some of the unique units of that race, those units will desert unless they are accompanied by a bunch of friendly units. Much easier to just replace Undead with Halflings.
Race relations suggests a diplomatic component.
And yes, there is diplomacy. You can be at peace, at war, or allied with another race's leader. There are two problems with the diplomacy though. The first is that it doesn't really matter. Since you have to beat up the leaders on the map anyway, whether or not you ally with them at some point in the game is moot.