Avandra and Erathis see the Dwarves and Elves and know that they are good. But they, too, see other possibilities. Avandra and Melora collaborate on the creation of Halflings, giving them a love of the valleys and the woods, like the Elves, a love of the bounty of nature as gift from Melora, some slight gift of fortune from Avandra and a tendency to seek hollows and tunnels to find their homes somewhat akin to the Dwarves.
Erathis and Melora see a place for a people that will become known as Gnomes. Again, an even smaller people, and encouraged to the hills where they can harvest and delve each in some measure. And given a good measure of the creativity and invention that is what Erathis loves most, they become friends to the Dwarves, Halflings, and Elves that they live alongside. In this way the three goddesses hope that by creating more diversity, and some likeness between them, greater understanding between the peoples of the earth will result. Eventually the gnomes take up the tools of the Dwarves and expand of them, turning them to growing, and harvesting, moving water, and building structures for safety and warmth.