I feel this question is one great example to reinstate the importance of the non-underlined portion of the given sentence.
A. City, that is known for having its aggressive culture, are surprised and find- we cannot have a comma before "that". This sentence also uses contradicting tenses. "are surprised" is in the present tense whereas ,"find" is not in the future tense.
B. City, which is known for having an aggressive culture, are surprised upon finding- IMO this is the right choice. "Which" refers to the noun city. Also, the latter part of the underlined sentence also seems flawless.
C. City, known for having an aggressive culture, are surprised, finding- here, I feel, "known for having ..." is not clear in what it is referring to.
D. City, which is known for their aggressive culture, are surprised. by the finding that- I assume this option has a typo. Going on, the clause "are surprised by the finding that" is a bit not concise. Also, "known for their" incorrectly refers to the tourists instead of the city.
E. City, that is known for having an aggressive culture are surprised when they find- Clearly wrong.
1. ",that" is always incorrect
2. "for having", present continuous is not required
3. " are surprised when they find " has a mix of all the tenses.