Why would both planes have to be transmitting? The military plane can read the commercial plane's transponder.
With transponders on, both aircraft (via TCAS) and the air traffic controllers are able to pay attention and avoid the situation, so much better chance of catching.
This does seem insane from a civilian perspective, but I'm curious to know the military side of it. Is this totally normal and not something they worry about, or is this as crazy as it seems for everyone involved?