The essence of tragedy, like that of the short story, lies in its conflict.
Literal
Tragedy [possessive-の] essence [topic-は], short-story [possessive-の] that [with-と] same-way, its conflict [copula-である].
本質 means 'essence.' それ serves as a pronoun replacing 本質 to avoid repetition. 葛藤 (かっとう) means 'conflict, inner struggle.' である is the formal copula. This reads like literary criticism.