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The stranger at Cedric's gate is Isaac of York. Although he is a Jew, Cedric refuses to turn him away into the stormy night. The Norman guests protest at his being admitted and Cedric makes him sit at a separate table. Only the Palmer takes pity on the drenched and exhausted Jew.
The Palmer names five knights who have displayed great courage during the Crusades. He also mentions a sixth knight, a great competitor, whose name he cannot remember, though he is actually speaking about himself. The Templar vows to challenge this sixth and unknown Knight at the forthcoming Ashby tournament.
Hatred for the Jews appears to infect both the Saxons and the Normans, from the noblest to the lowest. The servant seems to disdain the fact that a Jew has called at Cedric's gate; later the servants ignore him, and the Moslem slaves, belonging to the Normans, curl their whiskers in anger. Cedric himself makes Isaac sit at a separate table for dinner, as far as possible away from the high table. The Normans cross themselves in horror at his presence amongst them. Only Ivanhoe, disguised as the Palmer, welcomes Isaac.
Isaac's reference to the unfair tax imposed by the Exchequer upon the Jews reveals some historical truth about England's reaction to Jewish moneylenders. The Church of England forbade Christians to lend money at interest, so the Jews greedily extorted money at unusually high rates of interest. Isaac talks too much about his money and at the same time whines as if he has none.
The disguised Ivanhoe, like his father, appears to instantly dislike Bois-Guilbert, because he is a Norman knight and a moral hypocrite. He also resent the fact that this knight has made advances toward Rowena, the woman than Ivanhoe loves. It is important to remember that neither Rowena nor Cedric know that the Palmer is Ivanhoe.