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This is an issue of morality. Should the player rebuild the Old Quarter, the area's inhabitants will be very grateful, but you will have used up valuable gold, which could have proved vital in protecting the lives of citizens from the Crawler and the Darkness. Choosing the opposite choice, will obviously have the opposite effect: your citizens will be angry with you for leaving the Old Quarter as a smouldering wreck, but you will be better equipped to save the people of Albion with the money you saved. It is, as with most things in Fable, your decision.