For a start 700 years is a looooong time. How many of us are still hold a grudge against people we had wars against 700 years ago. How many of us remember who we were actually at war with in the 1300s? (I like in the UK so probably the French, Spanish or ourselves tbh). So, something must have been perpetuating this. If you use something like active prejudice against the Dredge, aka constant reinforcement that they are in fact evil and a friend of a friend told us she was attacked by one ect, you could get away with an even more impactful twist, especially with the then realization that we've been fighting innocent people because of rumors and unsubstantiated facts and then deal with it. A moment of character reflection is always welcome, and it's less outright prejudice because there was something being said about them. Could even be that the state or whoever's in charge is actively trying to get the Dredge wiped out like that, giving you an actual tangible target for the wrong doing your characters might have done.
There's also the alternate theory of the Dredge see them as a threat. One of the best pieces of advice I was given for conflict was to have your characters read off different scripts. The mother who has a son being targeted by a teacher vs a teacher who's trying to tell a mother her son's a brat. Have your villains see the heroes as villains somehow. Maybe they feel attacked and so are hostile. Also, if we're talking 700 years, and the Dredge have become isolationist, perhaps they've fallen into myth and legend and the mere appearance of them again is a sign another war is coming. In the same sense many apocalypse shows would have demons appearing is a sign that it's the end of days, kill them.
Tbh I think you've missed a step in your story creation. You've created your heroes and villains but not how they're connected and conflict. Conflict is the crux of a story, no matter how big or small. You might have to go back to the drawing board or reconcile with the fact that you can have not perfect heroes, especially if the readers are in the same position of realizing how prejudice they've been against the Dredge too.