Step 1: Reactions of diazonium salts.
Diazonium salts ($ArN_2^+X^-$) undergo replacement reactions where the $-N_2^+$ group is substituted by different groups depending on the reagent.
Step 2: Effect of each reagent.
$H_2O$ gives phenol ($-OH$ replaces $-N_2^+$). $C_2H_5OH$ acts as a reducing agent and replaces $-N_2^+$ with $-H$ (gives benzene). $CuCN$ gives benzonitrile. $LiAlH_4$ is not used for diazonium replacement.
Step 3: Mechanism of ethanol reduction.
Ethanol donates a hydrogen atom to the diazonium carbon, $N_2$ gas is released, and benzene is formed. Ethanol is oxidised to acetaldehyde.
Step 4: Conclusion.
$C_2H_5OH$ converts benzene diazonium chloride to benzene.
\[ \boxed{C_2H_5OH} \]