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I've never tried pvp myself but I would guess that perhaps make sure you aren't in the same party (perhaps you had it set to auto-party) and I believe that you may not be able to attack each other in town.
Otherwise as far as I know their is no "duel" option. You just go at each other as you wish.
As Pow said, towns are non pvp zones.
1) set PvP on
2) not be in party
3) get out of town