The bears lead Lyra up the cliffs. At the top, they instruct her to look up at a massive stone building. They point to the carvings that show bears and Iofur Raknison winning wars, but Lyra only sees birds perched in the recesses and their droppings, which obscure the carvings. As they get deeper into the palace, Lyra smells the stench of refuse and rotting meat. They stop outside a door. A bear opens it, swats Lyra inside, and closes her in. Pan becomes a firefly so that Lyra can see. She sits and pulls the alethiometer out. It tells her that Iorek and Roger are a day away and that Iorek plans to break in and rescue her. Lyra begins to discuss this with Pan but stops when she hears a voice in the dark.
The droppings on the carvings make it clear that this palace isn't something that's truly representative of the bears. The carvings and the palace instead symbolize the fact that Iofur Raknison desperately wants to be human but, in important ways, is failing at doing that. This gives Lyra crucial information that can help her figure out how to handle her captivity and Iofur himself, given that he's not a normal bear—he's failing at being a bear and is also failing at being a human.
Pan flies up and illuminates a man. He introduces himself as Jotham Santelia of the University of Gloucester. When he hears that Lyra is from Oxford, he asks if the Palmerian Professor is still there and accuses him of plagiary. Lyra lies and says that the Palmerian Professor was writing about Dust. Santelia shouts insults about the Palmerian Professor. Lyra sits down and flatters Santelia into telling her about the bears. The bears apparently locked him up because he was writing about them. He says that Iofur Raknison initially invited him to set up a university, but the Palmerian Professor and others betrayed him.
Remember how the Scholars in the Retiring Room laughed when the Palmerian Professor mentioned Iofur wanting to set up a university. Their reaction makes it clear that the panserbjørne aren't a part of the academic human world or university system, and Santelia's experience suggests that there are major barriers to even trying to become a part of those systems and societies.
Lyra suggests that Iorek will believe Santelia and free him when he arrives, but Santelia says that Iorek can't come back. To the other bears, Iorek is no better than a seal, and they'll kill him before he can challenge Iofur to a fight. Scared and disappointed, Lyra asks where the other prisoners and Lord Asriel are. At this, Santelia cringes and shrinks back, saying that Iofur doesn't allow people to mention Asriel. He explains that Iofur is entirely besotted with Mrs. Coulter, which means that he's happy to imprison Lord Asriel for her and the Oblation Board. But, Iofur is also afraid of Lord Asriel, so he allows Asriel to have all the equipment he wants. Iofur won't be able to keep up the game for long.
It's especially telling that Iofur seems to be doing what he's doing out of both love and fear, emotions that make him vulnerable to manipulation and make it more likely that he's going to make a mistake somewhere along the line. The fact that he's allowing Lord Asriel to continue his research suggests that at some point, Iofur is going to attract the ire of the Magisterium.
Lyra sits back and Santelia goes back to sleep. She remembers that the Palmerian Professor said that more than anything, Iofur wants a dæmon and to be human. Lyra begins to plot. She's nearly asleep when a bear opens the door to throw in seal meat. She races to the bear and says that she needs to see Iofur to tell him something important about Iorek. She refuses to let the guard pass on her message and points out that it's a rule that the king has to know things first. The guard pauses and then leads Lyra out. They consult another guard and Lyra insists again that in the interest of politeness, she needs to speak to Iofur herself. When they agree, it confirms her suspicion that Iofur has introduced so many new rules that his underlings are confused as to how they should act.
The confusion of Iofur's underlings indicates that while they may want to curry favor with Iofur, they don't share his desire to be human and play by these human rules that, to the bears, probably seem objectively silly. As a human, however, Lyra has the upper hand, because it would make sense that she's an expert in human etiquette, something that will make her attractive to Iofur and possibly dangerous to ignore for Iofur's underlings.
A bear pushes Lyra into the lavishly decorated but still filthy throne room. Inside, bears wear jewelry instead of armor. Birds swoop above and Iofur sits on a throne. He's huger than Iorek and looks somehow human. Lyra feels afraid until she sees that Iofur has a stuffed doll on his knee, where a human's dæmon might sit. It's dressed like Mrs. Coulter. Lyra steps close and gives him greetings from her and from Iorek. She whispers that she has something about dæmons to tell him, which makes him send the other bears away. She tells him that she is Iorek's dæmon—and says that at Bolvanger, they're experimenting with creating artificial dæmons. She says that Iorek was the first bear to get a dæmon. Iofur is shocked.
The doll of Mrs. Coulter confirms that Iofur is fixating more on the dæmon portion of what makes humans human than on anything else. However, the filthiness of the throne room, the jewelry on the bears, and the doll suggest that in all ways, Iofur is failing at trying to make himself something he isn't. The fact that he believes Lyra's tale and is susceptible to trickery indicates that in addition to failing at being human, he's also failing at being a bear—bears aren't supposed to be able to be tricked.
Lyra tells Iofur that Iorek is on his way to steal her back, but she wants to be Iofur's dæmon instead. She says that Bolvanger was horrified when they saw how powerful Iorek was with a dæmon and decided to stop the experiments. She says that Iorek is coming to take over Svalbard. Iofur roars in anger. Lyra says that Iofur is the rightful ruler and there's a way for her to become his dæmon: he must defeat Iorek in single combat. Iofur paces and then tells Lyra to prove that she's a dæmon. She asks Iofur to ask her any question that only he knows the answer to, but says that she has to come up with the answer in private until she becomes his dæmon. He asks her to tell him the first creature he killed, and then sends her to an anteroom.
What Lyra tells Iofur suggests that having a dæmon makes a person—or a being in general—more powerful. However, while she once believed that this was somewhat true, now she understands that having a soul—in whatever form—is what’s truly important. In this regard, she's able to purposefully point Iofur in the direction of devaluing even further the fact that he's a bear, which, given that he believes her, means that he's increasingly more susceptible to trickery.
The alethiometer tells Lyra that Iorek is four hours away and that she must trust him. It then says that Iofur killed his father, a grave crime that Iofur then concealed. Pan, as a tiny mouse, tells Lyra to flatter Iofur when she tells him. In the throne room, she declares that he's a god since he killed his father. He's impressed, but then asks her to tell him what Mrs. Coulter promised him last. Lyra returns from the anteroom and says that Mrs. Coulter promised to get Iofur baptized as a Christian in Geneva. Lyra says that she thinks that Mrs. Coulter lied; the Church won't agree to that unless Iofur has a dæmon, so he has to fight to win her. Iofur agrees, allows to let Lyra pretend that she still belongs to Iorek, and decides to follow Lyra's suggestion to tell the bears that he called Iorek here himself.
That Iofur committed such a horrific crime suggests that he's been uncomfortable as a bear for his entire life, as the novel implies that this is something totally out of the ordinary for a bear to do. Part of who Iofur is, essentially, the fact that he isn't a true bear at all, and in many ways behaves more like a human than a bear. Being baptized as a Christian would not only represent Iofur's shift to being human; it would also, presumably, signal that the panserbjørne are seen as equals in the eyes of the Magisterium—something that would be threatening for the Magisterium, given the bears' power.