sword fight combat question?

[mlangsdorf]

Let's play it out, turn by turn:

Turn 0 Character 2: at position 0
Turn 0 Character 1: at position 10
Turn 1 Character 2: Move 5 yards to position 6.
Turn 1 Character 1: Wait until Character 2 gets to position 7, then step and attack.
Turn 2 Character 2: Intends to Move 3 yards to position 9. At position 7, triggers Character 1's wait. Character 1 steps to position 9 and attacks, hits, and Character 2 fails to defend with a retreat, putting him a position 6 with 5 MP left.

It's still Character 2's turn, and he's currently taking a Move maneuver. He can't switch to a Step and Attack, but he may be able to turn the Move to a Move and Attack (if he's suffering a shock penalty, it's probably not a good idea, but slamming Character 1 is possible at this point.

Assuming Character 2 doesn't slam, he can end his move anywhere in roughly 4 hexes, so Position 1 or so, facing Character 1.

Turn 2 Character 1: Takes a Wait to hit Character 1 when he attacks and step back.

In GURPS, triggering a wait allows a character to convert the Wait into a different maneuver on another character's turn. It doesn't change the turn order or stop the other character's turn, it just interrupts it. The other character continues their turn after the interruption, and both characters keep their place in the Combat Turn Sequence. This is explicit on Basic p 366.