The Empire and the Aldmeri Dominion took an equal hammering in the last war, in that they both had their main armies eviscerated. The Empire, however, is still larger, more populous, and more resource-rich than the Dominion, and men reproduce at a (much) faster rate than High Elves. Therefore on paper the odds are on its side. If you take away the main disadvantages it had during the last war, such as being taken by surprise and being over-confident, then it could easily turn the tables.
even if subtly, and not explicitly stated, xenophobic.
If they were xenophobic, they wouldn't have elves (especially Altmer) and an Argonian among the richest residents in their cities, as stewards, and as court wizards.