The most common and most likely answer to this crossword clue is the 2 plus 5 letter word ON WATCH
I've seen this crossword clue in Financial Times
O
N
W
A
T
C
H
Buddy explains!
The straight part
We know that "Where hands may be seen/doing lookout duty" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case where hands may be seen/doing lookout duty = on watch.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.