Final answer:
Santiago is tested by the Alchemist to assess his courage and commitment towards his personal legend. The test involves a confrontation with fear. The Alchemist aims to ensure Santiago is ready to realize his personal destiny without internal fears.
Step-by-step explanation:
In the narrative of Santiago's encounter with the Alchemist, the test given to Santiago involves 'facing the sword'. It is a test of Santiago's courage and commitment to his personal legend. By threatening him, the Alchemist assesses Santiago's readiness and willingness to confront his fears and continue his journey despite potential dangers.
After the test, the Alchemist explains that the purpose was to ensure Santiago had conquered the fear that could impede his ability to realize his personal destiny. It's a process not unlike the transformation of overcoming internal darkness to discover the 'internal gold' the Alchemist represents in Paulo Coelho's allegorical novel.