Just hit the control button that it shows, you have to continually stab the button as fast as you can and you will see the line in the circle creep up then it will go into a auto fight scene. then just shoot when you have control again. it's a real pain.
one of the things i don't like is not being able to just melee when you want to in the game. they should have made it so you could just equip the knife instead of this tactic. But thats how to get through it.
seems designed so you will fail.