The goblins get some clues after using a magic carpet, then proceed to the nearby town in a tree.
Get a Basketball
Have 
Fingus use the stone on the ball that is stuck in a
branch. A kid will run out of a house and take it.
Have Fingus stand near the door of the house to the right of
the big clock.
Have 
Winkle go into the house where the kid is looking out
of the window, then as soon as the kid has fully appeared in the doorway
of the house to the right of
the ladder, have Fingus go into the house to the right of
the big clock. He will catch the kid and get the basketball.
Use the Basketball
Have Winkle stand underneath the basketball hoop in the
upper-left part of the screen.
Then have Fingus use the ball on the basketball player on the left
side of the screen. When the ball is bouncing on the hoop, switch to
Winkle and click on the hoop, and he will jump up through it
and knock the ball at the house on the branch. The mayor will appear in the
window.
Meet the Clockmaker
Have Fingus talk to the mayor to learn how to get the
clockmaker to open his door. Then have Fingus click on the
door of the house with the little clock on it. When Tom comes out, have
Fingus talk to him to get a clue.
There is nothing more to do in this area right now, so move the cursor to the grassy hill to the left of the basketball player until it turns into a door icon, and click to go to the forest, or move the mouse to the top of the screen and choose the wooden sign, then click Kael (the name of someone in the forest) to go to the forest.