I suppose Yuffie, Red, and Cid could have been in on some sort of conspiracy. Yuffie sliced the sleeping Cloud with the point of a Shuriken, then smeared blood on whatever sword Cloud happened to have beside him at the time. Since Red and Cid, however, figured Yuffie would make a break with the materia, Cid ordered the Highwind to launch a missle attack on Cosmo Canyon, to give Red an excuse to be "waiting" for the deviant and annoying young ninja. Red pushes Yuffie to her demise, then makes up the story about seeing her run past. Cid, having deceived Vincent about Highwind radio contact, appears to play no role. The motive? Cloud is the unfortunate victim in a scheme with the ultimate purpose of removing the blight that is (was) Yuffie from the world.
Well, that's probably wrong. I just don't see, however, where there's enough concrete info to establish any one scenario. I should read the riddle again.