Is there a way in which we can merge two meshes in edit mode? I have two mesh islands in the same plane which overlap as shown in fig1.
 Now when I go to selection and do "select boundary loop", it selects the full boundaries of both the islands as shown in fig2 . But what I ideally want to select is just the outermost loop of both the meshes combined as shown . For this I wanted to merge both the islands as one island. Is there a way I can do this?
Select one of your squares. Apply a BOOLEAN modifier with UNION.
Make sure the subdivision number is the same, try aligning them vertex to vertex. Use snap if necessary.
Set the boolean operator to UNION and select the second square.
Voilá.
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BFCT_Schiller