I'll start off with a disclaimer: giving tips for playing Lugaru better is hard, since the game controls have a mind of their own. This is precisely the reason that half of the times you click attack nothing happens. Perhaps the game decides that there is nothing around to attack, that you are not in a situation where you can attack, or that violence isn't the way.
That being said, here are a few things that got me through:
- Stealth kills: Attacking someone from behind when they are unaware of your presence is a guaranteed kill.
- Roundhouse kick: If I remember correctly this can be performed by attacking while running at an enemy. It has good power and in my experience opens enemies up nicely for further attack. You just need to get the hang of timing the attack (and hope that the game thinks that is what you meant to do).
- Cannonball attack: I think this was the name of the attack. It's the one where you launch yourself at the enemy with both feet extended outwards. Does massive damage when it hits (but leaves you rather open if it doesn't). you hold down mouse and run at the enemy then press space
bar. get close but not to close.
- Off-wall kick: This attack is a life-saver and the only thing that got me through the last battle. It's tricky to perform (if I recall you need to jump into a wall, let go of the jump button and press attack) but has two major advantages: It almost always hits, as enemies seem not to be able to predict it, and you start it by jumping away from the fight so it's almost always safe to perform.
- Be relentless: Did you knock an enemy down? Jump on him and don't let go as this is your best chance to keep him down. I seem to recall that the game doesn't always agree to let you beat up downed foes, so you may want to let enemies to start getting up before knocking them down again.
You already said you block and reverse attacks quite a bit, which is good as it is really needed on later levels (the enemies there do so much damage, that you hardly ever want to actively attack them instead of wearing them down through counters).
Hope this helps. Again, I played the game on normal and zoomed through it in like 3-4 hours. I'm not trying to show off or anything, just point out how random the difficulty is due to the imperfect controls.