Doing quests for the leaders of different cities should get you faction with that city.
I was working on quests last night as a human fighting the Orcs. I just completed the first siege quest (A Place of Hate) for Sir Morin in the city of Denwall. After completing the quest I return to the city and noticed that I am still Neutral. I enter the city and go to diplomacy and low and behold, I am once again dealing with my good buddy Sir Morin. I ask him for a trade agreement and he practically spits in my face.