Military alliance in combat ultimately possesses death instinct (8)
I believe the answer is:
thanatos
'death instinct' is the definition.
(I know that death instinct can be written as Thanatos)
'military alliance in combat ultimately possesses' is the wordplay.
'military alliance' becomes 'nato' (I've seen this before).
'in' is an insertion indicator.
'ultimately' indicates one should take the final letters.
'possesses' becomes 'has' ('have' can be a synonym of 'possess').
The last letter of 'combat' is 't'.
't'+'has'='thas'
'nato' inserted into 'thas' is 'THANATOS'.
(Other definitions for thanatos that I've seen before include "Producer of Death Wish" , "death to Greeks" .)