[guided]The diagonal intersection is designed to guarantee the following: if $\beta \in C$ and some index $\xi$ lies below $\beta$, then $\beta$ belongs to the particular club $C_\xi$. This is exactly what will interact with regressiveness later.
Define
\begin{align*}
C := \Delta_{\xi < \kappa} C_\xi
:= \{\beta < \kappa : \text{for every } \xi < \beta,\ \beta \in C_\xi\}.
\end{align*}
We prove directly that $C$ is club in $\kappa$.
First, $C$ is closed. Let $\lambda < \kappa$ be a limit point of $C$, so $C \cap \lambda$ is unbounded in $\lambda$. To prove $\lambda \in C$, we must show that $\lambda \in C_\xi$ for every $\xi < \lambda$. Fix such a $\xi$. Since $C \cap \lambda$ is unbounded in $\lambda$, there is some $\beta \in C$ satisfying $\xi < \beta < \lambda$. By the definition of $C$, the inequality $\xi < \beta$ implies $\beta \in C_\xi$. In fact, the same argument gives points of $C_\xi$ arbitrarily close below $\lambda$. Since $C_\xi$ is closed in $\kappa$, the limit point $\lambda$ belongs to $C_\xi$. Because this holds for every $\xi < \lambda$, we get $\lambda \in C$.
Second, $C$ is unbounded. Fix $\alpha < \kappa$. We want to find an element of $C$ above $\alpha$. Construct an increasing sequence $(\alpha_n)_{n \in \mathbb{N}}$ below $\kappa$ as follows. Choose $\alpha_1 < \kappa$ with $\alpha < \alpha_1$. Given $\alpha_n$, define
\begin{align*}
D_n := \bigcap_{\xi \leq \alpha_n} C_\xi.
\end{align*}
The set of indices $\{\xi : \xi \leq \alpha_n\}$ has cardinality less than $\kappa$, and $\kappa$ is regular. Therefore the intersection of these fewer than $\kappa$ many club sets is again club in $\kappa$. In particular $D_n$ is unbounded, so choose $\alpha_{n+1} \in D_n$ with $\alpha_n < \alpha_{n+1}$.
Now define
\begin{align*}
\delta := \sup_{n \in \mathbb{N}} \alpha_n.
\end{align*}
The regular uncountability of $\kappa$ is used here: a countable increasing sequence of ordinals below $\kappa$ has supremum still below $\kappa$. Hence $\delta < \kappa$, and by construction $\delta > \alpha$.
We show $\delta \in C$. Let $\xi < \delta$. Since the sequence $(\alpha_n)$ is cofinal in $\delta$, choose $n \in \mathbb{N}$ such that $\xi \leq \alpha_n$. For every $m \geq n+1$, the construction gives $\alpha_m \in D_{m-1}$, and since $\xi \leq \alpha_n \leq \alpha_{m-1}$, we have $\alpha_m \in C_\xi$. Thus all sufficiently far terms of the sequence lie in $C_\xi$. Because $C_\xi$ is closed and $\delta$ is the supremum of that tail, $\delta \in C_\xi$. Since this holds for every $\xi < \delta$, we have $\delta \in C$.
Therefore, above every $\alpha < \kappa$ there is some $\delta \in C$, so $C$ is unbounded. Together with closedness, this proves that $C$ is club in $\kappa$.[/guided]