In Egypt he taunted a character from Greece (5)
I believe the answer is:
theta
'character from greece' is the definition.
(Greek letter)
'in egypt he taunted a' is the wordplay.
'in' says the answer is hidden in the clue.
'THETA' is hidden in the letters of 'egypt he taunted a'.
(Other definitions for theta that I've seen before include "8th letter of the Greek alphabet" , "character from Greece" , "Homeric character" , "Greek letter equivalent to th" , "letter from Argos?" .)