Link goes to Sahasrahla where he finds out the elder's son, Osfala has gone to the Old Eastern Palace that is now presumably older than the Old Eastern Palace from A Link to the Past. In order to gain passage to the Palace, Link must borrow a bow and arrows from Rafio. Rafio gives them for free but with certain expiration fees (aka when you die you have to buy the arrows back). He then sends Link away to the Palace.
Link reaches the Palace to meet Osfala, but Osfala is confident in his abilities as a Sage to take down whatever evil lies inside. The lore and games in the series are a little vague on the purpose of sages in times without heroes, so Osfala's confidence may do itself some justice. Of course if Osfala dealt with the villain here and now, there wouldn't be much of a game. Naturally, Osfala gets turned into a painting, and after Link gets done dodging several large steel balls rolling down the hallway, he fights Yuga.
Yuga uses magical attacks. Link outfoxes Yuga with the bow and arrows, and Yuga doesn't think Link is worth his time. Yuga goes ahead and turns Link into a painting as well. With Link detained in the wall, Yuga declares nothing will stop him from getting the remaining sages and finally Zelda. As Link remains motionless as a painting on the wall, the hero's bracelet he got from Ravio begins to glow. As it shines a purple color, Link is freed from the wall.
Link finds he is now able to turn into a painting and interact on flat surfaces by the power of the bracelet just like Yuga. Using this power, he escapes from the Eastern Palace to find Sahasrahla waiting out front.
Sahasrahla recognizes that all of the sages are in danger, but then an earthquake strikes. Following the earthquake, Link and Sahasrahla find a dark force field has surrounded the Hyrule Castle. Sahasrahla attempts to break it but realizes the only magic that can break the barrier is the Master Sword of legend. To get the Master Sword, three pendants are required to awaken the sword. The first pendant is the one Zelda gave to Link before all the business at the Old Palace. Sahasrahla sends Link to retrieve the other two, and the game opens up to a much greater degree of free choice.
I'll talk about this choice in the next post.