God had a very specific plan for the nation Israel- it would be the nation that would give the world God's word -salvation message-(ref. Rom. 3:2), and even more importantly, it would be the nation out of which the Messiah would come.
Israel, as an immature nation with a very new religious system needed to be sheltered from the idolatry of the Canaanite nations.

God provides to Israel, another reason God would command such action is simply to apply His justice to a wicked nation. In Genesis 15:16, Abram first asks about possessing the land, God tells him that the time is not yet right "for the iniquity of the Amorites is not yet full." In other words, God was going to give the nations of Canaan additional time to repent and turn from their wicked ways. When they didn't, God chose to se Israel to bring His judgment upon them.

"It is not for your righteousness or for the uprightness of your heart that you are going to possess their land, but it is because of the wickedness of these nations that the LORD your God is driving them out before you, in order to confirm the oath which the LORD swore to your fathers, to Abraham, Isaac and Jacob. (Deuteronomy 9:5)

Okay, how "wicked" could those people have been?
How about killing their own sons and daughters by burning them in sacrifices to their gods:

"You shall not behave thus toward the LORD your God, for every abominable act which the LORD hates they have done for their gods; for they even burn their sons and daughters in the fire to their gods. (Deuteronomy 12:31)

Now that was the reason for which the israelites was ordered by God. But these things have passed and it does not apply for us any more. Remember if the israelites did not get their holy land for which they were promised, Gods salvation message would never had reached as many people as it has, and only a handful of people would have been saved. This was Gods best way of reaching out to as many people as possible with his message of salvation. This eye for en eye thing: that is Gods judgement, he is just and will have to punish sinners this way so that those who has done a lot of evil will not escape with the same punishment as those who has done less evil. Now the israelites were kind of soldiers for God in these particular events for the reasons I have explained.

BUT HE DOES NOT INSTRUCT ANYONE TO DO THIS ANYMORE. HE ONLY DID IT WHEN IT WAS ABSOLUTELY NECESSARY (for the benefit of human kind -see reason explained)! NOW THE JUDGEMENT IS UP TO GOD AND GOD ALONE!!!

Don't forget that we are all here only because God wanted to give us a second chance. We all deserve to die, because nobody is righteous on their own to deserve to live forever in Gods presence. But God gave us a second chance and made it possible because of his love to live forever with him as his original plan was. But he won't force anyone, it is a choice. But he have the right to take back the life he gave us if we don't choose him.

If God had not stepped in to decelerate the evilness at different points (This incident and Noah's ark for instance) actually NONE would have the opportunity to get saved, because Gods salvation act and the salvation message would never been put in action. Sin and evilness would have completely invaded the whole planet very early in in history and then there would be no point for God to create any more people, because nobody could get saved!