Your solution only matches if the line at the same line number in both files is the same. The OP was attempting to match each line in file1 against each line in file2. For the files listed below only the first line is matched even though there are four lines that match.

File1.txt:
item1
item2
item3
item4

File2.txt:
item1
abc
item2
item3
item4

File3.txt:
item1
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