Understood diplomacy around Italian (5)
I believe the answer is:
tacit
'understood' is the definition.
(I've seen this before)
'diplomacy around italian' is the wordplay.
'diplomacy' becomes 'tact' (tact can mean diplomacy or sensitivity).
'around' means one lot of letters goes inside another.
'italian' becomes 'i'.
'tact' enclosing 'i' is 'TACIT'.
(Other definitions for tacit that I've seen before include "Aircraft engine casing" , "Respect, admiration" , "Unrecorded" , "Unvoiced" , "Implied, not spoken" .)