Return to Mobliz and speak with 
Terra and the children.
Walkthrough
With the Falcon, the World of Ruin opens up and you can recover allies in a flexible order. Mobliz is a practical early destination because its events also award Fenrir. Speak to the children and Terra, then defend the village from Phunbaba.
After the first confrontation, leave and return later. Search the house and the concealed route where the children have gone, then speak with Terra again. The monster returns and a second battle resolves the situation.
Once Terra rejoins, check her equipment and magicite. Optional recruits make the final dungeon easier to divide into three functional teams, but the game does not require every character before entering it.
Checkpoint
After the first Mobliz fight, collect Fenrir on leaving. With the Falcon available, re-enter the village and visit the western house. Speak to Duane and use the hidden stairs behind the bookcase to find Terra and Katarin. In the second Phunbaba fight, the boss can remove party members temporarily; Terra returns during the battle.