Is this a good design for an enemy in my game or would people feel reluctant to kill this elf? Should I add an option to spare her maybe?

This concept is a good base but you need to add some colours. I'd suggest the standard approach - a bunch of thumbnails with blocked out silhouette to find the shape you like, then some slightly larger thumbnails exploring the colour scheme, then you'll have enough discovery to finish off this concept.
Cute smiling elf girl is definitely an odd target for murder but hey it's a video game, people will kill anything