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I don`t have Jaheira in my party, so I replaced Minsk with Cernd, temporarily.
When i get to Faldorn, I can`t get her to fight Cernd, she always ends up fighting me (Berserker/Cleric). I kill her but the red ring stays active and nothing else happens.
My conversation options, prior to the fight, keep returning to `can I make an agreement to spare the people of Trademeet.
Any help please?

You don't need any druids in your party. Remove Cernd. Readd minsc. Tell Faldorn to duel Cernd, even though he is not in your party.

It should work.

The only person she would fight was me. If I tried anything else, it went into a sort of loop and kept talking about saving the people of Trademeet. In the end, my Berserker/Cleric had to fight her. In a rage and barehanded. She wouldn`t die - just lay there with the red circle active. I used the volcano spell on her and eventually she died.
She mentioned Cernd, but offered no option to fight with him.

Bare hands do not cause real damage unless you are a monk. You can knock people unconscious with bare hands though. If you ever get into that situation again I'd suggest the spiritual hammer spell or the one known as flame blade.