How to handle lots of dialogue within dialogue?

Thank you, John. Yes, Elrond is an imperial turncoat. He's actually a Whill, a race of godlike beings who use their powers to maintain balance in the Force.

I took the short story down because it needed more work. It should be back up this weekend in two or three easily digestible parts.

I agree with CJ, it sounds like Elrond is merely the narrator and wouldn't be in quotes so the dialogue would proceed as normal. If that is not the case, then you might consider making it the case. Take care. Vern

I'm not sure how that would work. The characters in the story weave in and out of the tale, talking to each other, moving around, etc. Also, there is more than one narrator; other characters jump in and tell parts of the historic events.

If characters are talking to each other directly, it should get handled the same as you would for all dialogue; double quotes, tags etc. But if the narrator isn't speaking to another character, it doesn't classify as dialogue anymore unless he's speaking it all aloud to himself--which might work in tiny snippets, but would be quite odd and tiresome in a long read. 

I'm a heavy dialogue writer and all of my stories have many characters weaving in and out, talking to each other etc. I also generally have a narrator (usually the MC). It's not difficult to accomplish this if you pay close attention to creating character voice, utilizing solid transitions, good tagging and employ solid punctuation consistently.

As far as multiple narrators, there are loads of available techniques to do this effectively--the top 2 being differentiating characters by giving each a unique voice, and creating rock solid transitions--so switches between narrating characters are crystal clear to the reader. Switching heads in a 1st person narrative isn't an easy thing by any stretch--which is why so many writers go the route (the lazy one IMHO) of titling who is speaking, or using new chapters to switch heads. It's so widely done (especially these days) because getting good at creating written transitions takes a lot of work.

I tinkered a tiny bit with your example.
   
An Imperial walker delivered Luke to me at the landing platform, his wrists in restraints. The officer in charge handed over Luke’s lightsaber before turning to depart, leaving Luke and me alone for the first time in many years.  (small edit to rid it of quotation and attribute correctly--you had a 'he' which would have been attributed to Luke as the last person mentioned, and you weren't referring to Luke at all. I switched it around to get rid of that)

   "Hello, Luke."
   "Elrond." (removed the second hello to rid it of echo effect--see echo dialogue)
   "It’s good to see you again."
   "Is it?" he asked, twisting his wrists against the restraints. "I never thought we’d end up on opposite sides of the war."

    I wanted to take him into my confidence and reveal my plan, but it was too dangerous. ((which is why it wouldn't ever be in double quotes because then the other person in this 2-person scene would hear exactly what he's thinking)) Palpatine was an incredibly powerful Sith Lord. One slip by Luke and my plan would’ve fallen apart, leaving Palpatine aware he had been manipulated. He would not fall for the same ruse twice.

    "Vader will be here shortly," I said. (changed the tag because with only 2 people in the scene, it's obvious who he spoke to)
    "You don’t need to do this," he said, ((using the Force in an attempt to influence my mind.)) this part makes no sense because it feels as though it's a piece of narrative stuck within a dialogue tag, which is confusing and doesn't work. "Walk into the forest and disappear." I'm assuming this piece of dialogue is Luke trying to use the Force? If so, it needs to be reworked for clarity and should probably be in it's own line with clear-cut action tags.
    "I can’t do that, Luke. I have a role to play, as do you." (added the name for clarity sake)

    We spent the next thirty minutes mostly in silence, waiting for Vader. When he arrived, he told me, 'Leave us. Find his companions.' I did exactly as instructed and took my leave in haste. (I changed it up a tiny bit and chose to leave what Vader said in single quote because the narration is being told in past tense as a recollection--therefore double quotes would be incorrect AND turn it into a tense flip)
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This doesn't address dual narrative, but it's punctuated so that narrative isn't being spoken aloud, and what is spoken aloud is punctuated appropriately as spoken word.

Hi Dirk

What you have here is something my editor would throw red ink at, it's telling backstory through dialogue.

Crowd: Don't do this. We don't need all this backstory. Show us the heart of the character and the action.
Writer: What defines action?
Crowd: What the characters say or do
Writer: Oh! That's easy!

Now, aside from the fact that Shakespeare pretty much did exactly this, it's getting a little frowned on because it doesn't produce natural two-way dialogue. It tends to sound like people stating facts for an invisible 3rd person.

Doesn't help you here, but chipping it in because I see Linda has detected that and straightened it back into narrative like my editor would.

Also note that the danger of the moment is in the past at which point Luke's actions may cause the narrator danger. This method removes any chance of such suspense by punting the danger into the past (admittedly another trick the Great Bard got away with).

Hey Dirk,
The comments from the ghosts was more intriguing. Maybe you should have Elrond tell the story, and have Luke and Yoda chime in. Heck, maybe Anikan can show up and there could be a debate. Could’ve be hilarious.