Does Challenge initiate combat?

No, playing Challenge does not initiate combat.

According to the Riftbound rules and official FAQs:

• Challenge is a spell that causes units to deal damage to each other equal to their might. It is a non-combat interaction (RiftJudge FAQ #5136).
• Combat is a specific, structured phase that occurs when units controlled by opposing players are present at the same battlefield (Rule 454, Rule 456).
• Because Challenge does not initiate the specific steps of combat (such as assigning Attacker/Defender designations or initiating a Showdown), it does not trigger abilities that require "winning a combat" or "attacking" (RiftJudge FAQ #8835, FAQ #1368).