was flying / flying?

are you sure that the model answer is [was flying] ? i think the model answer is incorrect!

John and I LOOKED up at the sky and SAW a flock of birds WAS FLYING past us.

generally, an independent sentence should only have ONE object, ONE verb, and ONE subject.

In this sentence, there are 3 verbs. the [looked] and the [saw] are ok since the actions are both refered to the same object [john and i] and they are linked by the word [and]. however, [a flock of birds was flying past us] can be an independent sentence since it contains ONE object [a floak of birds], ONE verb [was flying], and ONE suject [us]. so, the structure of this model answer is incorrect. this is what we called [run-on sentence].

to correct [run-on sentence], there are few ways:
1. use semi-colon.
John and I looked up at the sky; a flock of birds was flying past us.
2. change the one independent sentence to dependent clause.
John and I looked up at the sky and saw THAT a flock of birds was flying past us. *thing after [that] becomes a dependent clause.
3. use gerund.
John and I looked up at the sky and saw a flock of birds flying past us.

i think maybe the question want to check whether you can determine the tenses or not, so the model answer shows [was flying], however, this damages the structure of the sentence. thus, i recommend you to ask your english teacher for more details.

I think the model answer is incorrect too because:

was flying= it passed
flying=continuing

since the sentence is, John and I looked up at the sky and saw...
While you were seeing, the birds were flying, so it is continuing.

So I think you are correct; John and I looked up at the sky and saw a flock of birds flying past us.

Hope I helped you!!