Inductive approach on Kleene star proof
It looks like you are on the wrong track.

While it is trivially true that $(L_1^*L_2^*)^{(0)} = \lambda = (L_1\cup L_2)^{(0)}$ where $\lambda$ is the language consisting of the empty word,    it is more often than not that $(L_1^*L_2^*)^{(1)}\neq (L_1\cup L_2)^{(1)}$. For example, if either $L_1$ or $L_2$ has a non-empty words, the left side $(L_1^*L_2^*)^{(1)}=(L_1^*L_2^*)^{(1)}\supseteq (L_1^*\cup L_2^*)$ has infinitely many word. However, if furthermore we let both $L_1$ and $L_2$ be finite languages, the right side $(L_1\cup L_2)^{(1)}$ is a finite language as well. A concrete counterexample can be given by $L_1=\{a\}$ and $L_2=\lambda$.

Here is an approach to move forward. Can you prove that for any language $L$, $(L^*)^*=L^*$? The use of that equality is that you can deduce that $(L_1\cup L_2)^{*}=\left((L_1\cup L_2)^{*}\right)^*$.

Here is another approach that I like. Intuitively, it is easy to "see" the equality $(L_1^*L_2^*)^* = (L_1\cup L_2)^*$. Note that A word in $L_1^*L_2^*$ is some number of words in $L_1$ followed by some number of words in $L_2$.


A word in $(L_1^*L_2^*)^*$ is some number of words in $L_1$ followed by some number of words in $L_2$, possibly followed by some number of words in $L_1$ followed by some number of words in $L_2$, ..., possibly followed by some number of words in $L_1$ followed by some number of words in $L_2$. Here "some number of" means zero or more. 
A non-empty word in $(L_1\cup L_2)^*$ is a word in $L_1$ or $L_2$, possibly followed by a word in $L_1$ or $L_2$, ..., possibly followed by a word in $L_1$ or $L_2$.


Can you see how a word in the former language must be a word in the latter language? Can you see how a word in the latter language must be a word in the former language? If you can, try expressing those "how" in rigorous terms. That would be a proof.



Here is a related exercise.


  Let $L_1$ and $L_2$ be languages such that $L_1\subset L_2^*$ and $L_2\subset L_1^*$. Prove that $L_1^*=L_2^*$.