Manually merge two files using diff

"I want to output the entire file in a unified format. Is there any way diff can do this?"

Yes.

diff -U 9999999 file1.txt file2.txt > diff.txt

This should work, provided your files are less than 10 million lines long.

One option that might fit the bill for you,

sdiff : side-by-side diff of files.

sdiff -o merged.file left.file right.file

Once there, it will prompt you with what lines you want to keep from which file. Hit ? and then enter for a little help. Also man sdiff with the detailed goods.

(In my distro, these come packaged in the "diffutils" package [fedora,centos])

If you need to automate the process, you might want to try the util merge, which will mark conflicts in the files. However, that might put you back at square one.