Can you help me find this barely-remembered children's book?

It was large and spiral-bound and generally brown, and had a picture of a gnome (similar to the garden variety, but with more of a Smurf-like hat) on the front.
As best I can recall, it was a collection of short stories making up an overall arc, rather like The Wind In The Willows. None of it is especially dramatic.
The reader is introduced to the gnomes early on, as well as a bunch of what I suppose are non-Tolkien elves that build elaborate contraptions to avoid work, and dress all in green. At some point they establish contact and later an alliance with the fairies. Then at one point we meet the dragon civilization through one of its less-fortunate members; I think that he gets captured, but I’m not sure.