Nation Y is still defending human beings and human territory, so the incentives remain the same.

What's not going to happen is X and Y agreeing to send their drones out into the desert or somewhere away from people to fight things out. War is the external application of a nation's monopoly on force - it just doesn't work unless that force is applied, directly or indirectly, against human beings.

I still don't see the difference between sending humans to attack cities with lethal force versus sending drones to do the same. It's how war's been waged for centuries. World War II took place in cities and fields. No reason to think drones would change the strategies we've used since combat planes.