The verses we have describing the conclusion of this event certainly do not paint the full picture of what happened. Mormon is through with his story when he has demonstrated the rule of honor among both parties. However, the statement that the Lamanites forgave through compassion is still too simple. The actual reconciliation had to have occurred when the original oath/treaty was returned to place. The first verse of Mosiah 21 is included here because it is more logically a conclusion to this section than a beginning to the next story.
Textual: There is no chapter break here in the 1830 edition. The current break between chapters 20 and 21 is arbitrary. From a literary standpoint, however, verse 1 of chapter 21 belongs with the current unit. It is the concluding statement of the story. The end of the event is the return of Limhi and the return of peace. The next literary unit will begin another story of conflict.