Once Santiago gets to Tarifa, his last stop before the city where the shopkeeper's daughter lives, he goes to see an old gypsy woman who interprets dreams, with the hope that she will help him understand his own recurring dream. When reliving the dream, just as the child is about to show Santiago the location of the treasure, Santiago wakes up. The Gypsy woman tells him that this treasure is real and that he must go to the Pyramids, an interpretation for which she charges him one-tenth of this future treasure.
Upon leaving the Gypsy's house, Santiago sits in the Plaza to read a book, where he meets an old man who is eager to strike up a conversation. It turns out that the old man not only knows how to read but has read the book that Santiago is struggling through. The man reveals himself to be Melchizedek, the King of Salem, and he introduces Santiago to what he calls "the world's greatest lie." The World's Greatest Lie states that fate prevents one from achieving his/her Personal Legend. Everyone has a Personal Legend, or something which he/she has wanted to achieve his/her entire life. Personal Legends come from the Soul of the World and this Soul of the World conspires to help everyone achieve them. Unfortunately, fear and routine get in the way. Melchizedek explains to Santiago that he appears to those who truly want to realize their Personal Legends: sometimes he appears as a stone, sometime he appears as a king. Melchizedek seems to be able to read Santiago's mind and promises to tell him about the treasure in his dream if he gives him one-tenth of his sheep.
After much deliberation, Santiago decides that his sheep, the merchant's daughter and the fields of Andalusia were just steps on his way to his Personal Legend, and so he decides to sell his flock and gives six to Melchizedek right away. Melchizedek takes the sheep and advises Santiago to always follow the omens, for they are the language of the universe. Melchizedek also gives Santiago two stones, a black stone called Urim (meaning "yes") and a white stone called Thummim (meaning "no"). Santiago is to consult these if he cannot understand the omens. Santiago buys a ticket from Tarifa to Africa and sets sail to find his treasure and his Personal Legend.
Upon arriving in Tangiers, Santiago realizes that his journey will be a lot more difficult than he expected. The problem? He doesn't speak Arabic. Sitting in a bar alone, he is approached by a young man who speaks Spanish and offers to help him get to the Pyramids. The young man takes Santiago to buy a camel and manages to escape with all of Santiago's money in the confusion of the marketplace. Santiago weeps with despair, but he asks the stones Urimm and Thummim if the Melchizedek's blessing is still with him. They answer 'Yes', and Santiago resolves to continue his journey.
Wandering the streets of Tangiers, Santiago comes across a crystal shop that has fallen on hard times. After Santiago cleans the pieces in the front window, the owner offers him a job. The owner tells Santiago that he will pay Santiago enough to save up for a new flock of sheep and a passage back to Andalusia. Santiago agrees and takes the job.
This part of The Alchemist finds Santiago changing the course of his life by deciding to give up his profession - a sort of safe haven for him - and to pursue his dream. This is the first of many episodes in the book wherein the desire to play it safe and to stick with what one knows almost holds Santiago back. Ironically, Santiago took a risk in becoming a shepherd in the first place. He wanted the freedom to roam the countryside and to get to know different regions, different towns. But after meeting Melchizedek, Santiago realizes that those things which seemed to offer him freedom have come to imprison him.
Also introduced in this section is the theme of dreams as meaningful and portentous. We have heard f Santiago's dream before, but only now do we hear a possible interpretation of it; only now does it become a call for action. The Gypsy claims that dreams are a language used by the Soul of the World to communicate with people. They are part of the fabric of a universal language that binds beings together.
Through this description of dreams, and the events that unfold in the narrative, Coelho's magical, fairy-tale style takes shape and comes to the fore. Melchizedek is himself a fantastical character, who knows a positively supernatural amount of things about Santiago's personal life, has magical stones to offer, and claims to be able to turn himself into different things. In this way, The Alchemist shows a certain amount of affinity with magical realism - a genre of literature wherein fantastic things happen but the characters react to them in psychologically realistic ways. This magical tone is one of the dominant stylistic characteristics of the novel.
When Santiago first travels to Africa, the reader sees his vaguely skeptical attitude toward the Muslims he meets. While in the bar, he hears the call to prayer and watches the Muslims prostrate themselves on the ground. He remarks that their actions are those of infidels. He also calls to mind St. Matamoros (literally 'kills moors') who is depicted on a mighty steed slaying the infidels at his feet. As the novel continues, these views will change, and the image of St. Matamoros will later recur in an altogether different circumstance.