Your next big step is getting rid of Yajna, the blue flame beast and entering a secret room. You have everything you'll need, but you'll also need a few spell hidden in the palace and out in the field. It involves the Hyleg Well
Solution (SPOILERS):
Step 1: USE ROSETTA STONE on the wall scribblings behind the tapestry hanging up in the spiral staircase (Sorcerous' Spiral) to get the NIAHC spell
Step 2: USE ROSETTA STONE on the Scribblings found on either side of the stone structure outside (where you first appeared in the world) and Learn the SAF and O. CLOCK spells
Step 3: Move around outside until the moon in the night sky is glowing bright (USE SAF to speed up time by 6 hours). USE O. CLOCK spell to freeze time while the moon glows and go the room with the well and the moon will be lined up with the lunar phase mural on the wall in the back
Step 3: USE NIAHC spell (Chain spelled backward) on the chains to lift up the well cover and USE the MOON COIN on the glowing well to have a gust of powerful wind blow
Step 4: USE ROSETTA STONE on the wall in the Scholar's Repose (the room with the Red Book) to learn the ALAKAZAM spell
Step 5: During the day head up the stairs and Yajna will be blown away by the well's gust of wind
Step 6: USE ALAKAZAM on the outline door on the back wall to access a hidden room