Your two sentences seem to be attempts to phrase the thought by using the subjective case who.
You present an example in which the objective case of the pronoun who is the most useful and clearest choice. When who is the object of a preposition, its objective case whom is grammatically correct. Although it is less idiomatic in spoken English now than it was 50 years ago, it is still preferred in most writing.
In your example, with each as a distributive of two important men in the first clause, and with whom as the object of the preposition of in each of, the sentence is clear as a bell:
It could be a war over the reign between two important men, each of whom knew himself to be the true heir of the reign.
This is not germane to your question, but reign might be replaced by throne as more idiomatic, and it need be used only once:
It could be a war over the throne between two important men, each of whom knew himself to be the true heir.