Encircle ancient city during second stage (8)
I believe the answer is:
surround
'encircle' is the definition.
('surround' can be a synonym of 'encircle')
'ancient city during second stage' is the wordplay.
'ancient city' becomes 'ur'.
'during' means one lot of letters goes inside another.
'second' becomes 's' (common abbreviation).
'stage' becomes 'round' (I've seen this before**).
's'+'round'='sround'
'ur' inserted inside 'sround' is 'SURROUND'.
(Other definitions for surround that I've seen before include "Encircle, fence in" , "Ring" , "Encompass" .)