"diamond cut diamond" --> A situation in which two equally cunning or devious people spar or interact. Primarily heard in UK. e.g. ~It's always diamond cut diamond when those two schemers get together.

Your question has been sufficiently answered, I take. I wanted to add that the Arabic equivalent, comes in with "iron" instead of "diamond": لا يَفلُّ الحديد إلا الحديد ("Nothing breaks iron but iron").

I think the phrase is figurative. The immediate figurative phrase I think of, which is quite similar to this one, is 'Iron sharpens iron'. This phrase is usually used when you refer to things which are alike, influencing each other. In my language, IsiZulu, we'd say 'Izandla ziyagezana', which is directly translated to 'One hand washed the other'. Simply put, the phrase diamond cuts diamond could mean that one thing makes the other better, and the other does likewise. This mutually benefits both parties.

I’d have to see the context... because diamond is one of the hardest minerals, it’s often used to cut other materials. It’s possible that it’s even used to cut other diamonds, but I don’t know for sure! A “diamond-cut diamond” could be a diamond that was cut with other diamonds. Or it may be used metaphorically

I guess, that is the same as the phrase: fight fire with fire