"Allay" is a verb meaning to reduce the intensity, lay to rest, or pacify and calm. Example: His mother attempted to allay his fears.
"Alley" is a noun meaning a narrow passageway. Example: There is an alley behind the buildings.
"Ally" is a verb or noun meaning to connect by some relationship usually showing helpfulness or kinship. Example: The United States is a close ally of England.
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