The low cost of diesel generators have led to their increased presence in hybrid microgrids. The presence of low-inertia devices in such microgrids makes the stability of hybrid microgrids a pressing concern. This paper analyzes the impact of equal and unequal active power sharing conditions on the dynamic stability of a hybrid microgrid. The sensitivity of low-frequency eigenvalues to changes in active power droop gains is studied and a "domain of stability" region is proposed to assess the stability of hybrid microgrids under different power sharing conditions. The different operating regions within the domain of stability are defined. Based on the sensitivity analysis and the domain of stability, the optimal droop gain for the diesel generator to improve the stability of the microgrid is determined. Time-domain simulations are carried out in the MATLAB/Simulink software environment and are used to validate the small-signal stability analysis results.