why does Blondie keep tuco alive?

[CalamityJane]

I think it's because Blondie and Tuco had a "bittersweet" mutual partnership.  Blondie needed Tuco's half of the secret to find the gold and Tuco needed Blondie's half of the secret as well, so they trusted each other (kind a'sorta).  At the end, I don't think that Blondie had it in him to shoot an unarmed man in a noose.  Instead, he shoots him down, Tuco is left with his hands bound, and has four bags of gold coins to carry - without a horse.  I think that's more of a "sweet revenge" than just shooting him outright.