When you awake from your little delusion you’ll be in Gongaga again. You’re actually headed to the City of the Ancients, but Bone Village is the city you need to get to in order to mark your way there. Step out of Gongaga and find the Tiny Bronco waiting near the shore. Getting to Bone Village is quite the journey. Take this route:
Talk to the man sitting down near the entrance and tell him you want to “Start diggin’”. Tell him you’re after the Lunar Harp, and the hired workers will help you out by pointing to the Lunar Harp. (The Lunar Harp is what you need to have in order to get to the City of the Ancients).
The way this works is you pick a spot by pressing Square and one of the workers will move over and stand where you were standing. You can place up to five workers, but you can use fewer if you’d like. Just select “done” when you’re done placing workers around the site. After that you’ll press square again to ignite the bomb for the search. After you’ve ignited the bomb the workers will all face the item you’re looking for. Use some triangulation and pinpoint using the workers where the Lunar Harp is located. Press Square one last time to dig in the spot you’re standing and if an item is there it will be found in the box in the morning.
The Lunar Harp is found in the spot marked by an X on the picture below:
You can also dig up a Mop, Buntline and a Megalixir in other locations when you select “Good Treasure” from the menu. Once you have the harp you’re ready to head down the trail found at the back left of Bone Village (Just north of the X on the screenshot shown to the right).
Once you enter the second part of the forest with the overhead camera view (a caption will read “The sleeping forest awoke…”) take a look around for a red summon Materia floating around. Catch it to recieve Kjata, your new summon Materia.
Take the right side at the first split in the path to find a chest that contains a Water Ring. Go back and take the left path through the log. Continue north until you reach the Forgotten Capital.