If you want to deter nations from attacking you, you must be believed to be so powerful that they would "have reason to believe" they couldn't withstand your retaliation. In other words, you have to look so tough that they're scared to attack you.
So what can we infer from this?
I see why "interest" threw you off on (D), because you're right; the stimulus doesn't discuss what's in the best interests of nations. HOWEVER, this answer choice takes care of that problem by saying "It is in the interests of a nation that seeks deterrence and has unsurpassed military power..."
So we're told everything we need to know about this hypothetical nation: it wants to deter its enemies, so we know what its interests are; and it actually has unsurpassed military power. We can infer that such a nation would want to let potential aggressors know how strong it is, because that would give them reason to believe they couldn't withstand retaliation; in other words, that would meet the necessary condition of military deterrence.
(A) is too strong; the aggressors don't need "certain knowledge," they just need "reason to believe."
(B) is the opposite of what's going on. The point is not that the strong nation won't attack, it's that the weaker one won't attack.
(C) is a mistaken negation or reversal, depending how you want to look at it. Just because the nation hasn't attacked (sufficient condition) doesn't mean it's because they're scared (necessary condition). Maybe they're not scared, but they just don't have any reason to attack the other country!
(E) is also too strong: the nation doesn't have to be the strongest, it just has to appear strong enough to make the other nation not want to attack.