If you go north in the academy, you will notice a part of the wall that you can click on. You picked up a picaxe in this room earlier (you cant sell it, so i presume you still have it), which will break through the wall (afaik, you dont even have to equip it, as long as you have it the wall will open)
<span class='standouttext'>Spoiler : </span><span class='spoiler'> Careful, there are a couple of fairly powerful ranaars there. </span>
In that room you will find a star amulet, which you can use to open a room to the south west. In that room you will find the "pink mirror" where you have to complete a quest that includes the diamond ring.
PS. to go to the next level, you have to head back into the tunnels, come back up with another set of stairs. You will end up in a sealed room, but there is a small teleporting stone that will take you to level 2.
