I have the following in my Makefile to squeeze a bibliography:

<pre>
all: paper.tex paper.bib
        latex paper.tex
        bibtex paper
        latex paper.tex
        (head -n1 paper.bbl; \
	  echo "\\addtolength{\\itemsep}{-2pt}\\renewcommand{\\baselinestretch}{.9}\\normalsize\\small"; \
	  tail -n+2 paper.bbl) > paper.bbl.fix;
        mv paper.bbl.fix paper.bbl
        latex paper.tex
</pre>