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Why is a single band image returned when merging or mosaicking two multi-band images?
Merge and mosaic only work with single band images. If a multi-band image is used as input, only the first band of each of the images will be processed.
As a workaround, merge or mosaic the two images separately, band by band. Then create a multiband dataset with the results. You can do the latter by adding the bands to a collection and using the Raster::SaveAs method. You could also use the Grid MAKESTACK command in ArcInfo Workstation to generate a single dataset from the separate bands.