World of Warcraft Chronicle: Volume I, Pages 94 and 95:
The trees, flowers, and woodland creatures silently watched the night elves flourished, whispering news of them to the Wild Gods of Hyjal. Among them, the demigod Cenarius took a keen interest in these newcomers at the Well of Eternity's shores. Cenarius adored the night elves and believed they had the potential to become great caretakers of nature. He befriended the fledgling race and taught them about the natural world. It was Cenarius's hope that the night elves would strive to live in harmony with the wilds.
For many centuries, the night elves did. They built a graceful society around the Well of Eternity. The capital of their small nation was Elun’dris, or “the Eye of Elune,” and it was founded on the shores of the fount of power. The night elves also honed their ties with the surrounding woodlands and their myriad inhabitants. Cenarius guided the night elves when necessary, pleased by the wisdom and benevolence that thrummed in their hearts.
But in time, many of the night elves yearned for a different life. These individuals became obsessed with unlocking the Well of Eternity’s secrets. They rigorously studied the fount’s arcane energies, becoming learned sorcerers. They harnessed the powers of the arcane lake and constructed wondrous temples and roadways around it. Magic became an inseparable part of life as the night elves reveled in the power at their fingertips. Pushing the boundaries of their intellect became the driving force of their culture.
It was during this era of unprecedented growth that the night elves’ most prolific leader came to power. Her name was Queen Azshara. Through her unbridled ambition, she would elevate her people to extraordinary new heights… and sow the seeds of their destruction.
As time passed, the night elves began eschewing diplomacy and largely ignored Azeroth’s other cultures. Azshara’s dogmatic beliefs regarding racial purity seeped in the night elves’ psyche, creating an atmosphere rife with xenophobia.
It was Azshara’s and the Highborne’s mentality that made them xenophobic, not something that was an inherent part of night elf nature. And in fact, the Highborne culture was not even the majority of the night elves’ way of life, as page 95 also notes:
There was, however, one location Azshara and her forces avoided: Mount Hyjal. The spirits and demigods who roamed the sylvan forests unsettled the queen. She knew in her bones that Hyjal was somehow beyond even her influence. It was a place steeped in ancient magic, a wild, untamable, and unchangeable land that stood in stark contrast to her vision of a new Kalimdor. Publically, Azshara prohibited expansion into Hyjal out of respect of the night elves' ancient kinship with the forests. In truth, she despised the mountain and the harmony it represented.
Azshara’s views on Hyjal were well known to Cenarius. With growing unease, he had watched the night elf empire expand. Year by year, he became increasingly frustrated with the hubris and thoughtless actions of the sorcerous Highborne. The majority of night elf society continued honoring the old ways of revering the wilds. The fact that these folk still lived in harmony wit the land warmed Cenarius’s heart, but he knew that they had no influence over Azshara and her arrogant followers.
And we have seen the Night Elves making changes to their culture to go back to their more diplomatic ways before Azshara and the Highborne’s influence. Malfurion at least held positive connections with the Horde after their partnership in the Grand Alliance for protecting Mount Hyjal. The Night Elves helped bring the Draenei and Worgen into the Alliance, and lifted the ban on magic once they saw it was already proliferated throughout the world regardless. And even High Elves, Pandaren, and Void Elves could be counted under Darnassus’ banner.
Night Elves are not inherently xenophobic by nature. Azshara’s and the Highborne’s mentality that made them xenophobic, and Azshara and the Highborne supremacists are out of the picture now.