Levelling up outside Wutai will take much less time than restarting the entire game, definitely. Did she take all of your materia or do you still have some crappy ones left? If you have a lot of materia she won't take them all.

You could try to level up your limit breaks a bit. Those small grass creatures right outside wutai are pretty easy to beat, so hack away at those. Also fight some thunderbirds outside wutai as they are quite powerful, so they'll fill up your limit gauge pretty fast. Aeris' 3rd limit level is pretty sweet, so that could help you much in this fight.