From your brief description, it doesn't sound like you have any way to break down nitrates. I'm not sure what a "10 gallon in tank pump" is, but I will guess it is a small internal filter. That is fine for mechanical filtration, but will likely contribute to your nitrates as it traps detritus and organic matter. You'd be better off with a small hang-on powerfilter because it will be easier to rinse off the floss/cartridge every day or so.
The easiest way to "fix" your problem is to get a couple of pounds of mature live rock. This will take care of your bio-filtration needs including breaking down nitrates. Since your tank is so small, you could do more frequent water changes. Also, even one medium-sizes damsel is going to push it for bioload in your tank. You'd be better off with one really small fish (like a small goby) if you're going to have any fish at all.