Multiple cloaks should not be able to incite rebellion on a single city in the span of a single turn. It just makes sense that you shouldn't be able to incite a rebellion when a rebellion is already happening within that city.
Remove fortify ability from the daggers. These guys aren't meant to last long anyways, they're just rioters after all and are meant to soften up a city to allow for your real units to come in and finish the job. Plus knights will finally be able to kill all of them in a single swoop as defense bonuses won't work without fortify.
When a city is captured, daggers are automatically disbanded returning 1 star per dagger. I don't see why they'd continue fighting after their job of overthrowing their city is done, I think they should be auto disbanded to somewhat prevent dagger clutter.
Mindbender's ability to detect cloaks should be improved. All it does is say there's a cloak nearby but it doesn't say specifically where, which is completely useless since it's already obvious there's a cloak nearby the moment one spawned in your opponent's city. Instead, mindbenders should just outright reveal any cloaks nearby passively, this makes this much more useful for dealing with them.
And some unconventional extra ideas that you guys probably wouldn't agree with:
Each dagger from a city should reduce its population by 1 disrupting the economy of that city till the daggers are dealt with. This also caps the amount of spawnable daggers when the entire population bar of a city is red. Since these guys are rioters it should be assumed that them not working for their city disrupts its economy till they are dealt with. Another way of doing this is having present daggers reduce the star production instead of the population of a city.
Meditation should reduce the severity of cloak infiltration by a decent percentage, spawning less daggers. Just makes sense cause the people in that tribe would be more calm and less likely to do something ridiculous like trusting a masked guy and starting a violent revolt which they'll probably die in.
Daggers can only spawn in water when there's a port in the city. This is self explanatory, where the hell did they even get those boats from?