LET THEM BREAK THEMSELVES AGAINST THE STONE

No.1

1. Invaders deal Damage to Dahan and to the land, reduced by Defend. Add Blight if necessary.
2. Dahan fight back (if any survivors)
2. Let Them Break Themselves Against the Stone (if Invaders dealt Damage to the land)

No.2
1. Invaders deal Damage to Dahan and to stone.
2. Dahan fight back (if any survivors)
2. Let Them Break Themselves Against the Stone (if Invaders dealt Damage to the land)
3. Invaders deal Damage to the land. reduced by Defend. Add Blight if necessary.

Which way is right?

No. 1 is correct. (I think this was also asked on Discord, maybe? But your formulation here is clearer, I can now see what the confusion is.)

Number 1 is correct. Let Them Break Themselves Against the Stone reads in part, "After Invaders deal 1 or more Damage to target land, 2 Damage." Thus, LTBTAtS deals its Damage after the Invaders deal their's to the land.

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Edit: Ninja'd.