You've kind of missed the point of a part of the game if you think Cloud was a clone of Sephiroth. He wasn't (you know this from the Tifa & Cloud memory reconstruction sequence when they fall in the lifestream at Mideel). In this part of the game you find out he was born and raised in Nibelheim, by his parents, and did indeed leave to go to Midgar to try to get into SOLDIER, only he didn't make it and just became a regular Shinra soldier (the ones in the blue outfits). On one mission he returned to Nibelheim, as in the sequence at Kalm when he explains when he last saw Sephiroth, but this recollection of events wasn't correct. It was Zack who was in SOLDIER and supported Sephiroth. Cloud was one of the masked regular soldiers and couldn't show his face to Tifa because he was too ashamed, as he'd said he was leaving to be in SOLDIER and hadn't actually made it. When Sephiroth went crazy in the Nibelheim reactor, Zack and Tifa were pushed back and it was Cloud who picked up Zack's Buster Sword and attacked him; he was unsuccessful, but upon trying to attack him on the platform above the lifestream he was speared by Sephiroth's sword. Cloud then used his strength to push Sephiroth into the air via the sword in his body and flung him over the edge, then collapsed. (It could be that Sephiroth's body floated through the lifestream and became crystallised, and that what you see as Sephiroth in the first part of the game is actually just a projection, which would explain why he floats and can travel through walls etc.; you see his body crystallised in the air when Cloud is affected by the Jenova cells later on in the game, there's an FMV of this near where the Weapons are released).
On a sidenote, after the fire at Nibelheim, Shinra hired people to go and live there and pretend as if nothing happened which explains why, when you first visit Nibelheim, no-one knows about the fire or who Cloud & Tifa are (in fact, they do know about the fire, but obviously they've been hired to pretend not to know). On Disc 3 you can visit Nibelheim again, and some of the people will tell you how they were hired after the incident.
You also know from the Mansion library sequence on Disc 3 that after Cloud had finished off Sephiroth, Shinra soldiers came and took Cloud and Zack away (Tifa was saved by Zangan, her martial arts instructor, beforehand - see the note in Tifa's bedroom at Nibelheim). They were placed in Mako tubes in the Mansion basement and experimented on, presumably by Hojo, being injected with Jenova cells. They had no effect on Zack, but Cloud became extremely ill. They managed to escape and reached Midgar by hitching a lift on a truck, but Zack was shot when Shinra caught up with them, and Cloud, in his confused state, picked up Zack's sword and went to Midgar. The effect of the Mako and Jenova cells on his body confused his memories with Zack's, making him think he had actually got into SOLDIER and had been friends with Sephiroth and hence explain his memories and actions at the beginning of the game. Why didn't Tifa say anything? She said she was a little confused herself, but gradually during the game she realises that Cloud wasn't the member of SOLDIER she saw during that day, five years ago, at the Nibelheim incident (there are points throughout the game where she begins talking about it but then stops, can't think of any right now). She didn't want to admit it either, but during the Mideel lifestream incident she did, and they figured out together Cloud's memories and what really happened (see above).
The term 'clone' was used, but they weren't literally trying to clone Sephiroth. They were simply trying to produce soldiers (from exisiting soldiers) that had similar abilities to Sephiroth. Sephiroth on the other hand was born with Jenova cells in him, because Hojo injected the unborn embryo with Jenova cells.
