I am familiar with the history of why these two writing systems were invented, and my question comes more from a modern practical standpoint.
In my understanding, hiragana and katakana both have same sounds, they are just written differently. Katakana is for foreign words and onomatopoeia, and hiragana for everything else.
So I'm just curious why weren't these two systems merged into one to make it easier to learn to write in Japanese?
“What’s up with upper case and lower case? We have two different forms for each letter, sometimes similar, sometimes completely different. Why weren’t these merged to make it easier to learn to write?”
Not poking fun at all—rather, recasting your post to point out that we English speakers deal with two different glyph forms for a single letter every single time we read or write—and we don’t blink an eye at that. So when learning hiragana and katakana, hearken back to your childhood days of learning the alphabet, and learning two different forms for each letter.
It’s really not that different.
And, come to think of it, some letters have more than just two glyph forms—consider alternative lower-case forms of A, such as the book form a with the loopy bit on top, or the usually handwritten form ɑ without the top. Or for G, such as the book form 
with a closed loop for the bottom, and the handwritten form ɡ with the bottom as just a hook. Come to think of it, kana are actually a bit simpler—while there are more letters in total, each letter only has the two forms (hiragana and katakana), at least in modern usage.
(For those interested in multiple historical variants for each kana, see also the "Hentaigana" article on Wikipedia, and this PDF from Unicode.org listing different hentaigana forms.)
What’s up with upper case and lower case? We have two different forms for each letter, sometimes similar, sometimes completely different. Why weren’t these merged to make it easier to learn to write? Don't forget cursive!
The distinction between Katakana and Hiragana helps with reading. Not because you can distinguish loan words from other words, but rather because you can easier break the sentence apart.
Usually, the parts of a Japanese sentence written in Hiragana are particles, modal verbs, inflectional endings, etc., which usually follow parts written in Kanji or Katakana. So every time the system switches back to Kanji/Katakana, there is usually a semantic break.
To illustrate this: While
すもももももももものうち
seems unparsable, adding katakana and kanji breaks it up nicely:
スモモも 桃も 桃のうち
(Spaces mark the switch back to kanji/katakana)
While most originally Japanese words have kanji, most (Western) foreign words don't, but especially for foreign words readers may need some aid to detect the word boundaries. it also helps differentiating function words from the names. In
カインがアベルを殺害した
we can see clearly that there are two names, and が and を are not part of them. (There are better examples)
Since learning additional <50 chars on top of the >2000 (essential) kanji is not too big a burden, the benefits outweigh the costs.
Well, most of this could also be achieved with spaces...
Eiríkr Útlendi's answer covers one key aspect of why the systems weren't merged (it's just a quirk of writing systems). But there's another answer that's actually already in your question itself: Hiragana and Katakana serve different grammatical functions in writing. If they were merged, Japanese writing would lose that method to distinguish loan words and onomatopoeia from other words.
Whether the gains of this grammatical function outweighs the cost of having to learn a whole second set of characters is subjective, but I'd argue that it's only marginally more difficult to learn Katakana in addition to Hiragana (especially once you compare it to the time cost of learning Kanji).
