When O'Flaherty writes, "the lust of battled died in him," it means that the sniper has changed as a human being.
The moment "the lust of battle died in him" takes place when the sniper has accomplished his mission. Throughout the story, the sniper is waiting for his target, seeking it out, and looking to eliminate it. At that very instant, O'Flaherty creates depth within his main character:
Then the dying man on the roof crumpled up and fell forward. The body turned over and over in space and hit the ground with a dull thud. Then it lay still.
The sniper looked at his enemy falling and he shuddered. The lust of battle died in him. He became bitten by remorse.
The need to accomplish his mission drove the sniper throughout the story. In the story's beginning, he is described as having “the cold gleam of the fanatic.” This "cold gleam" is what sustained him through injury and through lack of nourishment.
Yet, at the very moment he saw his enemy "falling," something changed within the sniper. The driving force, almost like a "lust" or excessive desire within him, had disappeared. Instead, once the sniper saw his enemy fall upon the ground, he felt bad about what he had done. He experienced regret and "remorse" for his actions. This remorse supplants his initial "cold gleam" because of seeing the three lives he has taken. It emphasizes his change.
O'Flaherty's description of "the lust of battle died in him" means that the sniper has gained insight into himself and his actions. In seeing the consequences of his mission, he recognizes the futility in war. He is no longer a "fanatic" who can be happy with what he has done. The fact that he begins to curse himself and the war while his teeth chatter shows his reaction to the death of "lust" in him. The sniper recognized that what he thought to be true and valid might not be so. Once he sees the consequences of his actions, the sniper no longer believes what he used to believe.