The Empire would rather have their forces stretched out, trying to keep Skyrim in the Empire, waste valuable resources on the fight up there...

When they could instead pull out of Skyrim, allocate Skyrim's Legions to Cyrodiil, keep the would-be-wasted resources for the future, and other things.

Not to mention, I am DAMN sure a Nordic-ruled Skyrim would quickly ally with the Imperials in Cyrodiil to fight against the Elves. A common enemy, for common reasons.

That makes more sense: For the Empire to surrender Skyrim and gain an ally against the Dominion, rather than waste men and resources trying to keep it.

They wouldn't have enough resources to go to war against the Dominion if they surrendered Skyrim, the war svcked Cyrodiil dry and wasted it badly, even decades later they're probably still recovering. Skyrim offers a good supply of soldiers that outmatch Imperial and Breton troops in straight up fighting, the native Nord population of Cyrodiil and High Rock wouldn't really stem the tide, or anything.

And why would Skyrim ally with the people they just rebelled against in a war they didn't start?
The Nords would just want to stay in Skyrim and mind their own business, just like Hammerfell.

Also, they're not at war with the Dominion right now, there's no point in stacking your troops on the border just waiting, when one of your provinces wants to succeed.

Skyrim has a lot of resources, such as iron and ebony. The province also has a population from which to draw soldiers and taxes.

Furthermore, to lose Skyrim would be to lose High Rock (whether by conquest or rebellion or simply drifting away) and it's precious magically gifted population.
Perhaps not immediately, but Cyrodiil would be cut off from High Rock, and history shows that exclaves don't often work well.

Look, all I'm saying is that it's better to let the Nords secede, then ally with them against the Dominion.

That's better than fighting a Civil War, losing men on both sides, wasting resources, all in an effort to keep Skyrim under their control?

Ulfric wants to secede from the Empire, but he does not wish to wage war on Cyrodil. Once Skyrim is free from the Empire, Ulfric has no motivation to fight them anymore. Instead, Ulfric mentions he'd rather attack the Dominion.

If I were the Empire, I would stop wasting troops and resources, pull out of Skyrim, in the process making the Nords of Skyrim happy, then ally with the Nords when the Dominion launches the Second Great War.

I am pretty sure the Nords of Skyrim would gladly agree to help the Empire fight the Dominion.

The problem is that the Empire is trying to maintain peace with the Aldmeri Dominion. Mind you, I do not believe they should be doing so. The terms were too harsh, and the Nord Civil War is a direct result of those terms. They should have spent the last twenty-five years preparing for renewed hostilities, rather than cravenly attempting to maintain an unequal peace... that, or openly shedding the other provinces (as they did with Hammerfell) and declaring Cyrodil a provincial kingdom, rather than the seat of an Empire. It'd have been more honest. Indeed, I believe it would also have been better preparation to shed their empire entirely for a time and focus on economic development.

Then, when Ulfric Stormcloak started his rebellion, they could have taken a "wait and see" approach, hedged their bets by secretly keeping in contact with both sides of the conflict, openly backing the winner at a point when it is almost (but not quite) inevitable... when their support can still help, but also when it is certain their support was behind the victor.

With Skyrim having victorious, experienced, and mobilized troops at her disposal (much the way Spanish veterans of the Reconquista moved on to become the Conquistadors of the Americas), and Cyrodil having resources available to put toward the war effort, they could have, at the very least, forced a better treaty than the White Gold Concordat.

If they could somehow secure help from Hammerfell (difficult, given they turned their backs on the Redguards and the Redguards managed to win back their land, anyway), reconquest might not be completely out of the cards, particularly if they are smart about leveraging discontent within Dominion lands--Valenwood, in particular.

This is why I've never done the Civil War quests on any of my characters. It's just the symptom of a much larger problem, one that is only aggravated by the civil war, regardless of who "wins." I want to fight the Aldmeri Dominion, but doing the Civil War only makes both sides weaker when the inevitable next war comes. I wish there was some way to get them to secretly compromise.

Actually, the Civil War is a direct result of the Thalmor playing tricks with Ulfric Stormcloak.

When the Concordat was originally struck, the Nords didn't have (much) of a problem. They remained with the Empire and continued to worship Talos, everybody knew it, and the Empire didn't force the issue. It wasn't until the Thalmor made Ulfric (who was a P.O.W.) believe the Empire lost the Great War, and goaded him into starting the rebellion after his "escape", that Talos worship became such a decisive issue. After the rebellion started, the Empire had to step in and put its foot down, otherwise be at risk of starting another Great War before they were ready for such a reignited conflict. Had the Thalmor not played Ulfric like a puppet, the Nords and Empire wouldn't be in this mess regardless of the Concordat.

Idk... I'm pretty sure on a political level it will make the Emperor look like a coward... He already surrendered once to the dominion.... Anymore and he will be legitimately French.

Why does everyone bash on the French? What am I missing here?

What you said is just as much an argument for not starting a rebellion in the first place as for letting the Nords secede. The rebellion in the midst of all the troubles would be similar to Scotland declaring independence during an uneasy truce between the Allies and the Axis during WW2 (a hypothetical one), and trying to gain their independence by military means.

It's just a stereotype/joke, one you can thank the English for iirc. French are supposed to be cowards and svck at anything martial and instantly surrender in the face of a competent foe (ANY foe, actually). Not all that true though. http://www.militaryfactory.com/battles/french_military_victories.asp

Given that markarth incident was less than a year after the concordat was signed, can you really say that the thalmor wouldn't have demanded to make sure the empire was holding up it's end of the agreement? That would've been stupid on their part. They didn't need ulfric, just rumours that Talos worship was still going on. Not to mention it was Igmund that said he offered the prospect of free worship(Unless you're stating Igmund is a thalmor agent)

Empire + Storm Cloaks > Dominion

The Empires fight is ridiculous, "Here lets call a treaty because we're equally getting screwd in the Great war then fight with our kin instead of bringing the fight to the elves."

And I understand that it's the game but.. look. The moment you come along Dragon-born or not you utterly tip the scales in favour of whoever you're with which is madness, you're telling me my efforts change the game completely? How about you guys just point me to the Damn elves and I'll do it myself!

I don't see your logic here.
They didn't stop the war just to fight with the Stormcloaks.
They stopped the war because they didn't have any fight left (though I doubt the Aldmeri Dominion did either).
They weren't in the position to take the fight anywhere.

The Redguards managed to fight the Dominion to a standstill and regained all their lost lands... alone. It wasn't that the Empire couldn't beat the Thalmor. It's that they weren't willing to pay the price to do so.

And the reason they would not pay the price to do so is one of the reasons Ulfric was pissed.

They didn't really have much to gain from fighting on, while they had everything to lose.

Hey now. Lets be reasonable. The Empire/ Stormcloaks are not fighting the "elves", they're fighting the High Elves of the Aldmeri Dominion. Don't you dare associate my Dunmer kin with those jaundice-skinned lunatics!

i think that the nords would be able to destroy most of the dominion because they almost wiped out the snow elves (which took refuge with the dwemmer and then killed most of the dwemmer then became the falmer)

if the empire and the stormcloaks allied together with the sole purpose of defeating the domion then i think that they would succeed.

i think the redgaurds would allied with the empire/stormcloaks - increasing strengh of the allience

im not sure who the khajit, argonian, wood elf, dark elf, ork, breton, other high elves or if the snow elves/falmer got civilised and dwemmer (if they came back) would allie with or wheather they would stay out of the war but i think it would make a great game!!! =]

Actually, they fought the snow elves, which ended with the death of the Snow Prince, and caused a rout of the snow elf army. The Dwemer then turned them into the falmer over the years after the snow elves took refuge in the dwemer cities, until the dwemer disappeared. The snow elves didn't kill most of the dwemer, they had nothing to do with the fact there are no deep elves.

The simple answer to the main question is trade and silver mines combined with wounded national pride. If you side with the Empire, it becomes their first real victory since the Great War, after all, possibly since the Third Era.