How do throwing daggers work than?

In my Opinion, the battlefield isn't large enough for the bows not to have infinite range.  I like it as is, where throwing knives have a very limited range, but Bows and Mages can hit from anywhere.

I agree with Mart on this.  If a unit can throw a dagger 3 tiles, then even the weakest bow would be able to fire anywhere on all but the absolute largest of maps, making limited range pointless.  As for withdrawing from combat, if you're the attacker, you can always just not initiate the attack; defenders, OTOH, should have a difficult time withdrawing unscathed.  Besides, the only way to currently withdraw is with magic.

Yea I kind of like this.

Yes, range in such small maps is a bit unrealistic, but I think its acceptable to add a bit of variety in battles. (especially if its an intended feature)