Any good hero or formation can legally be used in a good army as an ally, as long as it doesn't break the Decree of Allies.
Thematically you may have a small issue with Radagast aiding the Dwarves, but as another poster above said it's easy enough to come up with a reason and some fluff. But it's perfectly legal in game terms
Also consider the game beyond the movies... You are taking a spellcaster (Gandalf) with Gondor, why shouldn't the Dwarves have some magical help?
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