Like others have mentioned you need the fireball wand and a recharge scroll. This also takes advantage of the fact that the dragon has trouble killing the rats.

Go into turn base mode then enter the cave and save. The dragon will turn to take on the rats and you give the wand to the highlighted character and fire then pass the wand to the next character. Since the hits from the wand vary save after each good hit from the wand and reload if you get a bad one. After the first 3 have shot the wand save and quickly exit and reenter turn base mode. The dragon will try to kill a rat. Try to preserve the rats by reloading if one dies, sometimes it isn't possible to keep the rat alive so just continue shooting and passing the wand til it gets to one charge then recharge the wand. You should be able to finish off the dragon before you run out of charges on the recharged wand and still have at least one rat left alive. When the dragon dies kill the rat(s) with your other weapons. Then take the dragons hoard by multilooting the dragon. I usually go till I get at least one useful artifact and a high plus value disarm item anything else is just extra equipment to outfit the party or to sell.