If there are no non-humans acting as the “common enemy”, humans would start being racist to other humans instead. Racism doesn’t end when one simply kills everyone you’re racist against.
I don't know the laws or how advanced said world is. I'd assume it's still quite behind from our modern age, seeing as though their laws regarding general life are still quite primitive (based on the active and passive racism, which we learned from experience has more demerits than benefits.) And with that assumption, the possibility that both countries simply are incapable of invading it opens up. Maybe because of the terrain? maybe the nation is surrounded by a mountain range? a forest maybe? I don't know. There's also the fact that this is a fantasy world. Meaning, magic and other illogical things are possible. With this fact taken into consideration, the simple idea that maybe the third nation contains a strong magic, maybe a dragon, cannot be ruled out. I lack info on the world to be be able to narrow my theories down. But, realistically speaking, one probable theory as to why they haven't invaded/colonized it is probably the same reason as to why Nepal was never colonized. It's a bit too annoying for me to summarize, but basically, they weren't colonized because the British thought it wasn't worth it (cause of how shitty they saw the country as), but they made a treaty that heavily favored them, so they got the benefits of colonizing the country, yet avoided the demerits of colonizing it 'cause they didn't even colonize it in the first place. Maybe the two nations actually ARE fighting over it, but more internally, meaning more of manipulating said non-human nation's government (speaking of which, I don't know what governing ideology the empires and nations follow) rather than by brute force and wasting of resources. A cold war between the two nations and said participants waiting on who makes the first move? The buffer zone theory was already said quite a bit of times, so I'm not gonna repeat it, but I also think that's very possible.
it's simple and its because if one country the third party country is basically the border between the two empires, for example, if the holy empire destroy them even if they have reasonable explanation the human empire would only think that the holy empire is eyeing them and that could result in their competitive relationship into something more deadly I have more argument but I don't much time so just reply to me if you disagree
I try to disagree as little as possible, but as I have mentioned before, there are in fact other Non-Human races in that world. Even if the Third Party were to cease to exist, then the racism against the Non-Humans would still be present.
both part fault and terrain on third party settlement you can add third party.mostly skilled on assassination or lil bit strong to point unless both 1st and 2nd join hand it practical impossible to eradicate 3rd party that how 3rd party settlement can exist lil bit exploration on both party fault to make racism violent enuf to point 1st and 2nd not care about 3rd annihilation it mean been long time unless both holy and human experience Germany after ww I it mean the world history or on fiction world building is da key but since you cheapo who not wanna people ask the world then forget it just stick with human and holy corner 3rd party to stick on border for resistance, similar with buffer zone but it resulted from human and holy idiocy, unless 1st and 2nd party prepare for lost massive military strength or something like that they just leave 3rd party alone~ high racism on that kind of scenario can lead to creation of another area that have similar racism to hmmm those who start it, it act both way on country level despite one party have huge advantage on military the other side just need to put fight to death sense~ it enuf to kick any large scale invasion cuz 1st and 2nd is rational enuf... puu sure sure~