i have the amulet but Dagail won't take it and i don't get the option to give it to her....therefore cannot complete the quest.

Apparently that's one of the quests fixed by the Unofficial Patch. If you leave the fort before talking to a guy named Kalthar that happens. It's noted in the bugs section for the quest http://www.uesp.net/wiki/Oblivion:Leyawiin_Recommendation. If you already have the patch or don't want it for some reason, it also gives a console command that will advance the quest to the next stage. Hope that helps!

In case you don't have it, http://www.tesnexus.com/downloads/file.php?id=5296 to the patch. I highly recommend all three unofficial patches (Oblivion, Plugins, & SI).