I had thought the story was pretty clear until I read these comments.
Who or what is the narrator? Is he a god (apparently a reluctant god, or one with limited powers)? Why can't he control the hands that hang over the city? Are the speaker and the hands both aspects of a more powerful entity?
I think yes. I interpreted the main character as a manifestation of the god Emshalur. He fell in love with the people of Irishem for their passion when they burned their failed city and he became their patron. The people gradually lost their passion and it was replaced by fear and authoritarian practices. When the government made sacrifices mandatory for citizenship, they took all of the worth out of them. They weren't sacrifices freely given, they were taxes. They didn't understand that what Emshalur needed and wanted from them was a proud and zealous joy of life. That system had taken the love and passion from Kelian, his favorite mortal, and he could not support the city any longer. His favorites were marked to exempt them from sacrificing to him, but they were punished for it by the other people.
What was frustrating for me was that Emshalur couldn't/wouldn't communicate to the people of his city what he really needed from them.