NPCs do this by default.  They'll attack monsters they see but they won't attack each other since they do nothing to provoke each other.  The reason you don't see it often is because NPC's don't hang out in the wilderness but sometimes something silly like a mudcrab or bull netch will wander into an imperial guard or regular townsfolk's AI radius and they'll swim across slaughterfish filled waters to kill it.

There are mods that have regularly traveling NPC's appear on the road (and as a result, you can sometimes stumble across a dead one) but there's a great mod called NPC Enhanced.  It lets NPCs "hear" so if you're beating up a slaver and don't close the door or something the sounds of battle might attract their buddies.  NPC's can also run away and call for help which really adds to the excitement of battle.

The link I posted has a mod request similar to what you're talking about and they called it a bloodfeud or something.  I don't know if anyone took up the request but basically they were asking that every time you killed an opposing guild member or someone who was part of a faction there should be a random percentage that they call a blood feud and send an assassin after you.  Vvardenfell is kind of a united colony state (or was it a puppet state I can't remember) so I don't see two cities battling each other.

Okay I just got Oblivion, can someone tell me the names/locations of must have mods?