\usepackage{natbib}
\setlength{\bibsep}{0.0pt}
to the preamble of your document.
Otherwise, one is into unseemly hacking of something or other. The mdwlist package actually does the job, but it doesn’t work here, because it makes a different-named list, while the name “thebibliography” is built into LaTeX and
BibTeX. Therefore, we need to
patch the underlying macro:
\let\oldbibliography\thebibliography
\renewcommand{\thebibliography}[1]{%
\oldbibliography{#1}%
\setlength{\itemsep}{0pt}%
}
The savetrees package performs such a patch, among a plethora of space-saving measures: you can, in principle, suppress all its other actions, and have it provide you a compressed bibliography only.
This question on the Web: http://www.tex.ac.uk/cgi-bin/texfaq2html?label=compactbib