This will be the first time I post in this thread, but I have lurked for a good while now.
My opinion is similar to DragonParadox's.
Guys do you remember the traders way back in the beginning of the quest how shocked they were when the Ymaryn tried to do right by them and held themselves to the same standards to which they held others. That legacy is what this is about.
Something happened, the Highland Kingdom is rightfully pissed since our warriors offed an entire village that belonged to them. This is not the time for cold blooded pragmatism and realpolitik but justice.
Some might justify going to war because it is an opportunity, some because it will lessen our martial stat, and they will say it will be the best option out of this mess. However, they won't be able to say it is the right thing. The People, though recently troubled, is a closed-knit community with a potent belief that they are doing good and that the land will be better place by the time they are dead. What do you think they will believe when they hear this story? A righteous war or a power grab by cruel leaders? What legacy will it leave to our future generations? Men may apologize, but History doesn't forgive.
You have to see beyond the incident, beyond the immediate present. Beyond the Highland Kingdom.
This isn't simply about justice and righteousness. This is about values and beliefs. With the evolution of clan laws to smooth life in large cities, the King accidently created a whole new lot of corruption and a whole gang mindset in what was the foundation of our social structures. The lessons these gangsters will learn from the King, the same who allowed them to appear in the first place, if he goes to war on a whim will look like "In for a village, in for a region." The loss of morality and the surge of violence will be reflected in these corrupted and instable groups, we have gangs right now, but if they get into their heads that they should go into a turf war because of a momentary advantage, we will be able to expect our greatest cities to turn into disharmony through vendetta and riots. Legitimacy will drop, stability will drop big time, we will get asshole and ruthless values, the People will turn either against the government or against itself, and it will be ruinous all the same.
What happens in a story may or not happens in real life, but what happens in real life can certainly happen in a story.