We are not able to launch external merge tool in source tree and please find the below screenshot for your reference,Please check and let us know how to start the merge tool.
Source tree version: 220.127.116.11
Thanks for taking the time to report your issue while attempting to merge with an external diff tool. I found a similar thread which reported the same type of issue you’re having. We would ask you to please review the following Community thread and see if it helps with your issue; External Merge Tool Not Launching
If you’re still having an issue after applying the changes list in the referenced thread, please reach back out and let us know.