There is much documentation and discussion on this on the net.

The short answer that there are deep ideological differences between the GNU project and the Linux kernel projects, which gets in the way of a possible unification.

The focus of the FSF, the organization behind the GNU Project, is on ideological purity with respect to the idea of free software. This largely takes its lead from the views of the FSF/GNU founder, Richard Stallman. Additionally, as goldilocks has mentioned, the FSF is now mostly a political advocacy organization. For a long time now, the FSF has not put significant resources into the GNU Project, though they do provide support infrastructure.

The Linux kernel project has a much more pragmatic stance on software freedom, again to a large extent stemming from its founder, Linus Torvalds. The Linux kernel project is primarily a free software project, consisting of software developers specializing in kernel/OS development, and in no respect a political advocacy organization.

As specific examples of how these ideologies play out in practice, consider

1) That Stallman considers as unacceptable the fact that the Debian project "advertises" non-free software by maintaining the non-free portion of its software archive. This is ironic, since the Debian project has a focus on software freedom that is quite similar to the FSF, while not so ideologically rigid.

2) That the Linux kernel allows (non-free) binary kernel modules to be used with the kernel. While the kernel developers are not enthusiastic about this, they do tolerate it, but it is hard to imagine the FSF doing so.

It is also worth noting that Stallman's attempt to name the operating systems based on the Linux kernel as GNU/Linux has probably not improved relations between the FSF and the Linux kernel community, though I have no specific data about this.

Aside from anything else, as goldilocks mentions, the FSF has various rules that a GNU project must conform to. This includes copyright assignment of all code to the FSF. This would all by itself be a deal breaker, since Linus Torvalds has never required such copyright assignment. Therefore, if the Linux kernel were to become part of the GNU project, all significant contributions to the Linux kernel would have to have their copyright assigned to the FSF. Given the age and size of the project, and the number of contributors, this is basically impossible. Far smaller and younger projects (e.g. Mercurial) have found software relicensing a daunting task.

Please note that this answer is in no way intended as criticism of either the FSF or the Linux kernel developers. Both sides have their own valid viewpoints. However, the reality of the situation is that they are to some extent incompatible viewpoints.