You'll hear them jabbering long before you see them. Approximately half of the gnomes you encounter will use magic staff of lightning, the other half will use a pic-ax. The gnomes will often carry lanterns, making sneaking by difficult. Arm yourself with a ring/shield of magic resist, or a cloak/necklace of magic reflection. Using spells may not work as gnomes often wear cloaks, about 25% of the time cloaks of magic reflection.
"These are like goblins, but more human. They don't attack you unless they smell your gold and want it. They also come in groups. They don't really have much armour, but use more magic than anything. So keep that in kind, you might want a bow or fireballs o somn' to take care of these little pests." ~Shopkeeper Joe.
Gnomes drop gold, any equipped items, and various gems. (sometimes already identified)