From: http://www.fysik.dtu.dk/~schiotz/comp/latextips/#bibspace

<h3><a name="bibspace">Adjusting space between references in the
bibliography.</a></h3>

LaTeX normally inserts extra space between each
item in the bibliography.  A quick but ugly way of removing this space
is by setting <code>\itemsep</code> to -2mm (experiment to find the
right length) inside the <code>thebibliography</code> environment:
<pre>
\begin{thebibliography}\setlength{\itemsep}{-2mm}
</pre>
This is not practical if bibTeX is used, as the
<code>thebibliography</code> environment will be in the
<code>.bbl</code> file, which is overwritten each time bibTeX is run.
A better solution is a redefinition of <code>thebibliography</code>.
I have cut out and modified the original definition, just include the

<a href="bibspacing.sty"><code>bibspacing.sty</code></a> package to
set the spacing to zero. 
Another spacing may be selected by setting the
<code>\bibspacing</code> length.  To set the spacing to one line, use:
<pre>
\usepackage{bibspacing}
\setlength{\bibspacing}{\baselineskip}
</pre>
<em>NOTE:</em> If you use the <code>natbib</code> package, you should
use <a href="natbibspacing.sty"><code>natbibspacing.sty</code></a>

instead, and be sure to load it 
after <code>natbib</code>:
<pre>
\usepackage{natbib,natbibspacing}
</pre>