There were several instructions given by God in the OT to help the ancient peoples distinguish themselves from the surrounding societies, a lot of that stuff gets cherry picked when it is the old covenant and not part of the new covenant. Humanity has been developing for thousands of years, and to be honest there are other things in the OT that seem a lot more messed up than circumcision. A big emphasis throughout the Bible has been to help humans let go of the physical and embrace the spiritual, and some of the methods God used with the ancient peoples may seem pretty extreme to us, but were not extreme to them.
I personally would not have a son of mine circumcised because the new covenant clearly says it is no longer important, just like my children could wear mixed types of linens and so on.
As far as why it is still so commonly practiced, I think it's one of those, "We've always done it this way," sort of things, where people don't really think about it, and then they don't want to think about it, either. I mean you have to consider that most parents love their children fiercely, even though no parents are perfect, so if you try to convince a parent that they mutilated their children when they were not even religious or it wasn't required by God even if they were religious, well that is quite the emotional uphill battle. I'm not condoning it, but I am saying that I understand it. It's not like most parents have a male infant and are like yeah let's mutilate our son, it's not like that in their hearts and minds, and then they are scared to death of the idea because they love their children so much; this is imperfect human love, but it is a strong form of love none the less and blinds people to reason.
So just as Jesus set the example for us, the best approach is compassion and empathy, understanding that most parents do not mean any harm to their children, most parents are overwhelmed and in a whirlwind when having their babies and for the most part are relying heavily on medical staff for a sense of direction (and many parents experience much fear of getting things wrong, many lose a lot of sleep during the night just worrying about their new infants and checking on them), and then from that same love many parents are scared to death to consider that they may have done anything harmful, so people don't want to think about it and thus it doesn't change.
If we judge (and we ought not, lest we be judged) instead, and come at people like, "You mutilated your child, how could you?!" then people will just shut down even more.