Blender is definitely possible. There are two ways I can think of. One is to just model on a mesh in sculpting mode. But it should also be possible to draw on a black and white UV height map and be able to see the effects in real time in another view port. Sculpting is probably the better option, because with a height map you just aren't going to get the fidelity and realism without running it through something like Wilbur for texturing. In which case it's much easier to work through raster programs, Wilbur, and then import it into Blender. There are also specific programs built for this, the only one I can think of at the moment is Gaea (which has, or at least used to have, a free tryout version). I'm also certain that someone has made a Blender plug in for terrain development, but it was a paid one, there might be free ones.