On Mojave, the dialog reads "Keep .ext" or "Use .ext". Command U works to activate the "Use .ext" choice. It's possible that on your OS version, Command A for Add will work. (Apple's Human Interface Guidelines used to recommend that key shortcuts were indicated.)
I'm fairly sure that Tab used to be enabled for all items by default in the Classic Mac OS days. I'm not sure why or when it was turned off by default.
It's exactly what you need for this kind of situation. Dialog controls are traversed with Tab and the currently highlighted button activated with the Space bar. Only the default (blue) action is triggered by Enter/Return. Escape is traditionally Cancel.
This dialog is problematic (on Mojave) because the the negative action is both the default and the initially highlighted button. If the 'Add' button was initially highlighted, you could press Space or Enter/Return to choose the two options, without using Tab. (You could try Space bar on your OS version.)
I'm unaware of any issues with having Tab set to move across All Items.