Conflict observed in capital (6)
I believe the answer is:
warsaw
'capital' is the definition.
(capital of Poland)
'conflict observed' is the wordplay.
'conflict' becomes 'war' (war is a kind of conflict).
'observed' becomes 'saw' (seen).
'war'+'saw'='WARSAW'
'in' is the link.
(Other definitions for warsaw that I've seen before include "Capital city of Poland" , "Poland's largest city" , "1929 international agreement regulating commercial air transport" , "Largest city in Poland" , "Polish capital" .)