Is God really Merciful according to the Bible?

1) Knowledge. In times when God reveals himself more clearly through his actions, people are held responsible for that knowledge. God had been displaying his wonders through his acts of kindness toward Israel, therefore the peoples who lived closest to Israel were held responsible with more severe acts of judgement. Egypt was one example, with an escalating series of miracles making clear the extent of the Egyptian people's rebellion against God. In 1 Samuel 15, the Kenites are warned to not assist the Amalekites or be included in his judgment against the Amalekites. They are also commended for assisting the Israelites in the past, whereas the Amalekites had always been hostile.

2) Patience. The Amalekites oppressed Israel for centuries, yet God held back, giving them a chance to change. As a more extreme example of God's patience, consider the people who lived during the time of Noah and were wiped out by the flood. They were warned well in advance, but refused to change. Methusaleh's name means "When he dies, it will come." His name is a prophecy of the coming wrath. If God were long on justice and short on mercy, he would have made Methusaleh live a short life. If long on mercy, he would bless Methusaleh with a long life. Which did God arrange? Methusaleh lived 969 years, longer than any other human in all of history. God chose mercy - with a limit.

3) Unselfishness. When executing God's decrees, Israel was not to profit. They were doing this for God, not for themselves. That is why the animals had to be slaughtered. If they took the animals, they would face a moral hazard - profiting personally from the eradication of other peoples. There was a battle fought by Joshua that they lost because an Israelite took some treasures as plunder when they were commanded not to take plunder.

4) Impartiality. When the people doubted God's goodness in the time of Moses in the story of the twelve spies, he permitted the Amalekites to defeat them in battle. In that case, the Amalekites were instruments of God's judgment against Israel. This shows that since God favored the Amalekites when they obeyed him, he had set an example for them to follow, that if they obeyed Israel's God, they could expect favor and mercy; He is a God for all people, not just one nation. God did the same for Egypt, sparing them from famine through Joseph, but they later repayed grace with slavery and infanticide. God also prospered Babylon and other empires, only to overturn them when they refused to turn from evil.

1. It is really more like "Thou shalt not murder" rather than just kill.
2. According to a correct formulation of divine command theory, which is grounded in God's nature as the ultimate source of good, what God commands people to do is always good. It may or may not be obvious to us why, but typically makes sense upon 1) further study or 2) looking back at the big picture.
3. The big picture is that in the Old Testament, Israelite military victory and conquest ultimately 1) brings glory to God and 2) brings people to salvation. This is because as God's chosen people, God continuously command them ways in which they would be set apart, hence many of the rules in Old Testament, even wearing strands of different types of clothing (Deut. 22:11). That way the nations may know that Israel is unique because they serve Yahweh. God's desire is that all nations would know Him, not just Israel (Isaiah 42:6, 49:6), so anything that makes the nations realize that Yahweh is the true God would be a good thing, such as God demonstrating His power to the prophets of Baal in 1 Kings 18. Unstoppable military victories many times helped nations realize that Israel's God is the real God. It is a demonstration of God's power.
4. This action of God (the "bloodbath") is just. It is people getting what they deserve. We all deserve the same thing that they received. I would say that not every action of God is merciful because I think it is not possible for any single action of God to be both merciful and just. However, this "bloodbath" is most certainly just. In fact, if God was not merciful and was only just, we all would be dead and already in hell forever (Romans 3:23, Romans 6:23, James 2:10). That is what justice is. People getting what they deserve. We all deserve death because we have so often violated the moral law of a holy God. The fact that you are still breathing is a sign of God's mercy.
5. God doesn't enjoy killing people (Ezekiel 18:23, 32). He truly desires that people will repent and be saved (Ezekiel 18:21). He often gives them ample opportunity for this, though they are rarely take it.
6. The pattern in the Old Testament is Rebel-Repent-Redeem. Over and over again. God is slow to anger (Exodus 34:6, Psalm 103:8), and he is indeed very merciful (2 Samuel 24:14, 2 Corinthians 1:3). He, many times, waits generations to carry out judgment on a people (including Israel) even though they are filled with sin and wickedness. He also relents when people repent (Jonah and Ninevah). He wouldn't destroy peoples if there were good people in them (recall Sodom and Gomorrah?).

I think the reason so many people have questions like this is people forgetting

1) what it means for God to be just

2) what it means for God to be holy

3) the big picture of how God set Israel apart with his laws and how it lead to other nations realizing that Yahweh was the One True God.

We can trust that what God does is good because He is essentially good (Luke 18:19, Psalm 34:8, 100:5, 106:1, 107:1, 119:68, etc.). It is one of His essential attributes, which means that there is no possible world in which God exists but is not good. So, wow, do we have a good God!