The entire Khajiit-Argonian hatred stems from the fact that the Khajiit think that an Argonian Shaman crafted the Knahaten Flu which decimated the Khajiit population and infrastructure (as well as most of Tamriel, except the residents of Black Marsh, who were immune to it.) Due to this hatred, both species think each other lesser than the other, and Rules-With-Claw was attempting to annihalate that through the peace talks or, as it turns out, the ascension of a Non-Khajiit onto the Khajiit throne.