The hobbits are only about 3-4 feet tall and are 1/4 the strength of humans. They do have the same running speed as humans do though and have twice the dexterity. Hobbits live twice as long as humans, but mature at the same rate. Hobbits have medieval technology, mostly wearing chain mail armor with some limited access to partial plate, about on par with 13th century Europe. They have the same intellect and character as humans more or less, though they tend to be a bit more peaceful and easy going. Because of hobbits peaceful nature, they have 75% less crime and need for law enforcement than similar human communities would.
Despite their weakness compared to other races, they have one huge magical advantage - no one can attack a Hobbit community unless the Hobbits attack first - this is a magical prohibition put in place by powerful wizards long ago. No other nation can take hostile action against the hobbits, including poisoning water supplies, causing environmental harm or otherwise. This prohibition only applies when the hobbits are on their own land, it does not apply to hobbits who leave their land for any reason. Also, the prohibition is broken if hobbits try to exploit this by taking other nations as vassal states or allying with another nation and then extending a thin way of hobbit land around the allies' land. Hobbits can only be attacked by an enemy if the hobbits attack first, and even then it is only by that one enemy and its allies, no others may attack. One major exception is other hobbits - any hobbit nation can invade any other hobbit nation - though the attacks lose immunity for as long as the conflict continues and for one month after the conflict ends.
Hobbits are naturally good and resist evil magic. They have a 50% chance of resisting any non-physical magic directed at them, this increases to a 75% chance if the magic is inherently unholy or demonic. Hobbits are also extremely stealthy and quiet and are able to sneak with skill unrivaled by any other race save the elves.
Some hobbits, the merchants, can travel outside of hobbit lands while still being immune to attack. These merchants can enter foreign land and trade for goods or even gather basic information, though they cannot enter private or public spaces without permission and must leave foreign land if asked to or they will lose immunity. During every month of trading in foreign lands, the merchant can procure 10 mundane items that another race produces - such as ten dwarven arquebuses, ten shirts of high elven mythril chain, etc. Instead of bringing back weapons or items, a hobbit merchant can hire mercenaries from foreign nations instead - getting 10 mercenaries per month spent dealing with the home nation of the mercenaries. The hobbit merchant can get the following mercenaries : goblins, kobolds, humans, zombies, dwarves (count as 2 each), homunculi (count as 2 each), ogres (counts as 5 each), elves (count as 10 each), or draconians (count as 10 each). These mercenaries will be subservient to the hobbit nation for 5 years each unless the hobbit nation finds itself at war with their nation of origin, in which case they take the side of their homeland.
Another special kind of hobbit is the rogue. Rogues are hobbit masters of stealth, information gathering, and even assassination. They have incredible skill as sneaking, breaking an entering, and sleight of hand. The can easily scale walls, pick locks, escape from bonds, crawl through narrow spaces, or steal a coin purse right under a victim's nose. They are also skilled in close combat and have peak hobbit dexterity and combat skill. Combing their stealth with their ability to fight makes them ideal assassins as well. Hobbit rogues carry enchanted short swords (the size of human daggers) that allow them to strike a blow with the same force as a human does, but with the deadly speed and accuracy of a hobbit rogue. Another special quality to rogues is that they do not violate the prohibition against violence if they attack another nation. If a hobbit rogues goes to assassinate a rival country's leader, the leader or his guards may fight the rogue, but the rogue's home nation doesn't not become vulnerable to counterattack.
Hobbit priests are paragons of virtue and leaders of their communities. They believe in peaceful coexistence and trade with all nations and try to encourage that among their people. Priests have the ability to heal with a touch, by simply concentrating for 30 seconds they can heal any living being of all its injuries. Priests are beacons of holiness and light, as a result, they can repel creatures of evil such as undead or demons. The priest must merely concentrate and take no action other than walking and no such creature can come within 20 feet of the priest or use any magical powers against him. Also, with a second of concentration, the priest can focus his holy energy on a single undead creature within 100 feet, causing it to disintegrate in the case of lesser undead (like zombies, mummies, ghouls, etc.) or causing it terrible burns and pain (in the case of wights, lich priests, or vampires). Priests will not use violence against any living thing, though they can attack undead with holy power or weapons.
As leader of the hobbits, you can be a hobbit wizard. Hobbit wizards have the ability to look into the future once per week, basically allowing them to ask the fates (the GM or another PC) any one question that must be answered. Once per day, a hobbit wizard can instantly teleport from where ever he is back to his sanctum in hobbit territory, this power can be used to avoid injury if the hobbit is targeted by a spell. Hobbit wizards carry magic acorns that when thrown at an enemy, turn that enemy to stone if touched, this transformation can be reversed by enemy magic users, but requires a month of study and ritual to do so. Hobbit wizards carry a magic wand that can shoot bolts of energy at targets within 500 feet, these bolts will knock down enemies and stun them for 30 seconds. Also, with his magic wand, the hobbit wizard can counter spells cast upon him or any of his allies with 100 feet, though this is only 90% effective and can't be used to counter two spells at once.
Alternatively, you could be a hobbit assassin. Assassins have all of the ability of normal rogues and a few other powers. With 10 seconds of intense concentration, assassins can turn themselves completely invisible - though this power fades if they engage in combat or take any offensive action. They carry an enchanted blade that can cut through any substance as easily as the air. Any living creature struck by this blade will become paralyzed for 10 seconds from a magical poison which coats the blade. The assassin can also carry ranged weapons which carry this poison as well. Assassins have peak hobbit strength and 50% greater than peak hobbit dexterity. Hobbit assassins have heightened senses and awareness and are able to spot invisible or hiding creatures or see through illusions. Hobbit assassins carry three magic items with them at all times, though after using up one of the items it takes 6 months to procure a new one - a scroll of teleportation, when read it teleports the assassin to any place he can see or has seen before, reading the scroll takes 10 seconds; a potion of alteration that allows the hobbit to assume the appearance (but not abilities) of any humanoid creature for up to 6 hours, and a flask of holy water that has the same effect as a priests holy energy burst if thrown on an undead creature.
The largest of hobbit communities have no single leader at all but are instead ruled by a council of elders. These elders vote on issues that effect the community as a whole. Even if embers of the ruling council die, they will be replaced by others, even if they are all killed - meaning that the ruling council can ultimately never be killed permanently as new members are elected to replace those who die. The real advantage to the ruling council is that they usually exist in large hobbit communities, so the total hobbit population of the nation is increased by 50%
You begin play with 50,000 hobbits and 1000 merchants. Your total number of priests and rogues is equal to 1,000 - the more religious your society the fewer rogues will exist. Each merchant also has a caravan with wagons, ponies, and 10 hobbit servants. The total number of hobbit merchants can't exceed 1/50 normal hobbits and the total number of rogues plus priests can't exceed 1/50 normal hobbits. Hobbit nations ruled by a council start with 75,000 hobbits, 1,500 merchants, and 1,500 priests plus rogues.