I'd suggest fighting in the forest around Mideel. You'll usually encounter 3-4 enemies there, and while they're quite easy to defeat, they still cause a pretty good amount of damage, so they're good for filling your limit break gauge if you want to learn the second limit of a level. If you need to learn a limit break of the next level, it's also pretty fast killing 3-4 enemies at a time. The enemies give a pretty good amount of EXP and AP as well.

When you're strong enough, the sunken ship Gelnika is a good place for leveling up. It is recommended that you have Ribbons equipped when you go there. Finally, the Northern Crater is also good for leveling up. If you need AP, Magic Pots and Movers are good for that (use W-Item to get 99 Elixirs). To get Ribbons, have Yuffie use her Conformer to Morph Master Tonberries.