This is fairly easy to do but it is a core change. If you are comfortable with that do the following:
You need to change the user/editlib.php file. Find the line that says that the field you are referencing is required and comment it out by placing a # symbol at the beginning of the line. Sorry, I don't have the exact line because in the latest versions of Moodle, they have removed this requirement but it is fairly easy. Just search for city within the code and you will a line or two that contains 'isrequired'. Make a copy of the file first in case you delete out the wrong part (which might cause the page not to load).
Alternatively, you could upgrade to 2.6 where those fields are no longer required!