I am curious as to why it would have been knife or hand to hand. Why wasn't one side armed? Surely the normal situation is that forces would be armed in a camp controlled by them? It just sounds fishy to me.
And I still think it makes strategic sense especially for a lone soldier not to engage hand to hand unless success can be guaranteed (improvised weapon / stealth) or there is no other option, so I am not sure TKD really influenced that decision. But as you say, we were not there.
As has been said, there's a lot of propaganda, nationalism and spin involved in the telling of this history, and it's pretty much impossible to prove anything other than written agreements.
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The bolded part is all too often true.
However, evidently you have never been in the military, much less in a combat zone. Many times there are relatively small outposts, or those that are not sufficiently defended to repulse a large concentrated attack, by a superior force, on a part of their perimeter. This is done for many reasons. There may not be enough troops for a defensive line across several countries as in WWII in Europe; then the best way to disrupt or defend against the enemy is to set up outposts which hopefully can be defended by artillery and air power. An unanticipated strong attack against a part of the perimeter of an outpost can result in penetrations of parts of the perimeter. Attacks of that nature weren't uncommon in Vietnam. Penetration of the perimeter were less common, but did occur. When it is attempted, or in fact occurs, there will be hand to hand combat. That may consist of troops with rifles, knives, grenades, clubs, or just their hands. They have one goal; survive.
Up to some time after the Tet of 68, and up into part of 69, the Korean divisions there had a reputation of fierce fighting and not losing. Nobody I ever heard of complained about Koreans near them other than enemy units. They also had a reputation of not only willingness, but a desire to engage the enemy, whether in large unit tactics, or small unit tactics. Whatever would get them a chance to engage and win. After 1970, the entire conduct of the Vietnam war changed and there was much less engagement by anyone.
Hand to hand combat can also occur when a unit is ambushed. If the ambushed unit does not surrender or retreat, and artillery and air power can't dislodge them, somebody is going to have to engage them and neutralize them. That may well result in hand to hand combat as well.
So, the bottom line is that yes, hand to hand combat can and does occur.
As to a lone soldier, that must be his choice, whether he prefers to engage in hand to hand combat, and possibly die, or surrender. Some may retreat, some may surrender; some prefer to engage, knowing they may die, while trying to complete a mission. The anecdote of the then Korean soldier is not implausible at all. Soldiers in combat get missions like that, or find themselves behind enemy lines. They have a choice first to evade, surrender, or fight. I think it is wrong to think the MA taught in those days was for trophies to display in a school. If he was well trained, and thought getting back to his unit was the thing to do, and was confident of his abilities, why not.
The other side was capable of thinking outside of the box as well. Military historian SLA Marshall commented on a patrol in Korea that was wiped out one night. An examination of the scene when the bodies were recovered disclosed that they had been fired on, and a brief firefight ensued, then the enemy ceased shooting. Members of the enemy ambush then quietly crawled up to the US soldiers in the dark, and killed them to a man. Marshall was angry, considering it to be a low, dastardly deed. I think most infantrymen, while not liking their own to be killed, would have thought it a clever, low risk way to kill enemy.