I would take the damsel back to your LFS as a trade. Damsels are nortoriously territorial and will likely not let up. He will continue this behavior until the other fish is dead. If you have more than one fish tank, perhaps just moving one of them.
The other thing you can try is rearranging the rocks in your tank a bit to see if you can get the damsel to setup different territorial boundaries, but this will likely not work.
Decide which fish you want to keep, and then find the other fish another home.