The Dragonchild — Anne Margaret Lewis

A dragon egg was stolen by elves and lost in Nat-y-Ceirw 500 years ago, and now it's hatching in a world where it doesn't belong. The town and the woods will be destroyed and the dragon itself will die, unless David, Eleri, Brynmor, Tati, and Daio can save them. Unfortunately, time and humans mean nothing to elves, who will do anything to cover up the theft. The bwganod and the children are up against cleverer, more powerful enemies than any they have faced before. All they have is their own courage--and a Moon-Horse.