Honestly.. doesn't sound like anything out of the ordinary to me. Damsels are generally aggressive and territorial especially if there is another fish in the tank with the same size and/or shape and/or colors. A larger tank would bring this factor down a bit, but not by much. They need something that blocks their line of sight, so they can't see eachother. I have ocellaris, and even though they are considered to be the "nicest" of the clowns, i can't really say they are all that nice. My two clowns really attacked eachother and my emerald crabs relentlessly until i put an end to it lol. All this sounds like to me is normal behavior between two "sometimes" aggressive fish.
However, to stop the fighting you can turn off the lights. Turning off the lights always stops fish from fighting. That's how i got my fish to stop fighting for good. You can also put a little food in the tank when they are duking it out. That will usually sidetrack them for some time. I used both of these methods, but i found the lights-out thing works the best, considering it even stopped the fighting for good.