This one is a tough one, if I remember correctly (it's been a while since I played it) and it took me a few tries.
Build your buildings to the south east, as attacks come from the north and south west. Towers on your northern front will help drive off the rogues and elves, allowing you to focus the combat with the clerics and paladins. Use defense flags on towers along south west front to concentrate your heroes in that region. Wizard towers are especially handy as a well aimed chain lightning can take out low level clerics with ease so they don't keep the paladins alive.
After an attack wave is driven off, dismiss the defense flag so your heroes can go shopping and pay taxes. As usual, once your heroes are leveled up you can storm the enemy bases, starting with the cleric and paladin base as they are the bigger threat.
A note of caution: putting attack flags on clerics is a good way to get rogues and elves to take them down fast but be careful. If the cleric runs back home dismiss the flag so any of your heroes don't chase them back into their base and die.
