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Magic in Middle-earth

Yes, there is a working force in Middle-earth that is supernatural; meaning effects which cannot be achieved by normal, everyday methods. This process can be interpreted as "magic". There are examples of spontaneous creation of fire, songs of power, words of command, miraculous healing, runes of power, and weapons with special abilities. Yet, for all this, Tolkien used magic sparingly and for good reason; if used too much it is no longer special or supernatural.

What is the nature of this Magic?

The nature of magic in Middle-earth is wrapped around Tolkien's philosophy of power and domination. In one of the The Letters of J.R.R. Tolkien (#155) he makes a distinction between "good" and "bad" magic and further states that both sides used both types. It is not the magic itself that is good or bad, but the intentions and motives for its use.
Good magic is meant to be "artistic" for the purpose of creating or preserving beauty, whereas bad magic was used for "deceit" or to dominate the wills of others. But magic in general, was a means to quicken the process between the conception of thought and actual realization of effect.

Which races used magic?

Tolkien believed that the ability to use magic was derived from the inherent power contained within the individual and that Men did not have this type of power. Aragorn, who could heal the sick, is of course, an exception. But Tolkien goes on to state that he is, through descent, related to Luthien, born of Thingol an elf, and Melian a Maiar.

Didn't the Istari, or Wizards use Magic?

The Istari, of course, could also use magic, but they are not a race. The Istari were messengers from Valinor, who were sent to help the races of Middle-earth resist the domination of Sauron. They were lesser Maiar, but changed into mortal flesh and subject to the trials and effects of Middle-earth. Being changed into Istari, they used their inherent power which was called "magic" by Men, but in a subtle manner; they were forbidden to use their power openly in direct confrontation or domination. However, they did use this magic for certain beneficent purposes. For example, Gandalf uses his magic to create fire, and invokes a command of holding on the door to Balin's tomb during the attack of the Balrog.

What about the Magic of the Valar and Maiar?

The Valar and Maiar should be treated separately and not associated with magic in the mortal sense of the word. They certainly could perform supernatural feats, but this power should be considered as "divine power" and not magic.

Can't the other Races use Magic?

Dwarves, men, hobbits, orcs, and the other races of Middle-earth are seemingly devoid of "inherent power", and can not perform magical effects. The exception to this is for Men of Elven descent, such as the line of Elros, brother of Elrond, who was considered half-elven.
The only other way for a mortal to use magic is with a Ring of Power. Before the Nine faded and became Ringwraiths, it is stated that by using the Nine Rings these men "became mighty in their day,kings, sorcerers, and warriors of old (The Silmarillion)." The dwarven rings also lent magical power to their users and it is rumoured that the "Seven Hoards of the Dwarf-kings" had a ring as its source. See the FAQ on the Rings of Power (to be written).
However, this is not to say that these races could not create items with special properties that could be considered magical. The Númenóreans created swords with spells on them, and the dwarves made the Helm of Hador and used runes of power. But this process is different from magic and is defined as lore.

What is the difference between magic and lore?

Tolkien specifically stated that magic can only be performed by individuals possessing an inherent power (Letter #155). Magic allowed for the instantaneous creation of effect from thought.
Lore was knowledge gained by study to be used in the creation of items such as elven swords, the palantír, the doors of Moria, rings of power, etc.

Which races used magic?

Magic was invoked by speaking. Words were extremely important to Tolkien, who was a philologist. He considered words as enchantments or spells; say the word "green" and it invokes the image of the colour in the listener's mind. The process of invoking magic was to conceive the thought and speak it to realize its effect. By saying the word it makes the thought real. For example, Gandalf uses words to open the entrance to Moria, and he also uses a word of Command to hold the door against the Balrog.

Here you can find informations concerning Middle-earth. Actually, I didn't know where to put this pages, so here they are.
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