Island city where someone spotting thief called out? (7)

I believe the answer is:

nicosia

I'm a little stuck... Click here to teach me more about this clue!

'island city' is the definition.
'Nicosia' can be an answer for 'city' (Nicosia is an example). I'm unsure of the 'island' bit.

I cannot understand how the rest of the clue works.

Can you help me to learn more?

(Other definitions for nicosia that I've seen before include "capital city" , "Mediterranean city" , "Casino I visit in Cyprus" , "Divided Cypriot city" , "European Union's most southerly capital" .)

I've seen this clue in The Guardian.

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