Greek character embracing a sexy dance (7)
I believe the answer is:
lambada
'sexy dance' is the definition.
(I've seen this before)
'greek character embracing a' is the wordplay.
'greek character' becomes 'lambda' (letter from the Greek alphabet).
'embracing' is an insertion indicator.
'lambda' placed around 'a' is 'LAMBADA'.
(Other definitions for lambada that I've seen before include "Erotic Brazilian dance" , "Lively Brazilian dance" , "dance in South America" , "sexy dance" , "rhythmic Latin American dance" .)