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It's quite a long story, dating way back to the Silmarillion. It's not really the fault of one race, but both.
Many of the Elves (Noldorin, mostly) spent time with Dwarves because of their shared love for crafting things (jewels, metal-made items). Dwarves learned from Elves, and vice-versa. But still many of the Elves disliked the Dwarves for their rather... un-elflike appearance.
In one of the battles of the First Age of Middle Earth, the Battle of Unnumbered Tears, quite a few Dwarves fought with the Elves against the first dark lord, Morgoth. But later on, some Dwarves were called upon by Thingol, and Elf lord, to set a Silmaril (the most awesome jewel imaginable, basically) in a certain necklace made by the Dwarves as a gift to a different Elf. The Dwarves completed the task, but then wanted the finished product for themselves, thinking that the necklace was rightfully theirs (it's owner had died some time back). Thingol and the Dwarves fought (both partially under the 'power/lure' of the Silmaril), and Thingol was slain.
Also there were the petty-dwarves (slightly different than dwarves in general), and an article on Wikipedia says this on the subject of them and Elves:
"The Sindar, not acquainted with Dwarves yet, saw the Petty-dwarves as little more than bothersome animals, calling them (Levain) Tad-dail 'two-legged (animals)', and hunted them for sport. Not until the Dwarves of the Ered Luin established contact with the Sindar did they realize what the Petty-dwarves were. Afterwards they were mostly left alone, but not before the Petty-dwarves came to hate all Elves with a passion."
Not sure if the above was true (Wikipedia is both reliable and unreliable), but I thought I'd add it anyway.
Back on to petty-dwarves! There was one called Mim, and while he helped a man named Turin for a while, he eventually gave away there location to the enemy.
So... I'm sure I forgot some things and I may have gotten a few things wrong, but there's a very rough summary. I would highly advise reading the Silmarillion, as that's where it all starts. Hope I helped a little!
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