1 This is kind of cool: "every key ‘Westminster model’ country in the world now has a hung Parliament".

2 I think what we're seeing is a demonstration of the Arrow theorem.

3 Interesting.  I don't think I've seen that before.

4 Arrow's theorem has nothing to do with hung parliaments; Arrow's theorem regards how there is no fair system ("fair" define as following a set of 5 particular axioms) which can transform a collection of individual's ranked-preferences into a group's ranked-ordering of preferences.

It's usually colloquially given as "there is no perfect voting system", but it is only applicable to a single election, not the hundreds of elections that go into electing a parliament or legislature; so it's not applicable to STV at all, and is only applicable to FPTP and AV when applied to each election individually (and it's not even applicable to all single-election voting systems, just those that operate on ranked preferences.)

The problem is, parliamentary systems rely on Duverger's Law to suppress the power of 3rd-party candidates, to the benefit of the two largest parties, on the theory that one of the big-two will always be able to form a majority government; but if the two largest parties are very evenly matched, even the reduced power of 3rd parties can be enough to create a hung parliament.

The way to "fix" this is to even further reduce the power of 3rd parties... or to find a way to make hung parliaments be less-damaging.

5 You'd think that a democratic system would trend towards this sort of thing.

Assuming you've got two major parties that correspond to a loose tendency towards the left or right, broadly speaking, centered on whatever country you're talking about (not the same value in Israel as it is in Britain, right?) Both parties are competitive enough that they've got more-than-occasional access to the public purse, and thus don't have any trouble with fund-raising.

To the extent that the parties can avoid caucus-breaking wedge issues, they're going to concentrate their money and re-election resources on the areas which have the greatest marginal chance of resulting in victory. They'll moderate unpopular positions (note how US Republicans haven't pushed the anti-abortion issue lately, nor are the Democrats pushing the anti-gun issue, though it's unlikely either party has seriously changed its mind on the issue). Greater resources are going to be devoted towards the few percent in the middle that are perceived as "on the fence". No point spending money in Berkeley to try to elect people from the GOP, or pouring money into a rural Texas district to try to elect a Dem.

The party that successfully captures a larger share of the split in the middle is the one that gets electoral success, and thus power. The strategy gets noticed (it ain't rocket science exactly) and the other party attempts the same thing. Eventually you get to the point where both parties are relying on fairly large (probably-gerrymandered) "safe districts" and putting all their resources into the 10% or so that's considered "in play".

The better both parties get at scraping a percentage point or two off the center, the closer they get to each other. Their positions start to lose definition as they compromise. They get roughly-equal amounts of donations for roughly-equal amounts of pork, though the particular beneficiaries probably aren't the same.

Eventually you get to the point where neither party can field a solid majority - you've got a strong 40% on one side, a strong 40% on the other, and a mushy middle with some mixed nuts. Israel's parliamentary system has been grappling with this issue for decades (they have a very large collection of nuts, if I can characterize it thus). In a lot of ways, even the US system has the same dynamics, except that instead of small third parties, you get individual moderates with very weak party identification (McCain, Lieberman).

The biggest problem with all of this is that both parties tend to want to increase the size of government. It's not just a matter of rewarding donations with favorable regulation. It's a matter of motivating donations through fear; you're not worried so much about gaining quid pro quo as you are about the other party gaining power and enacting punitive regulations. (Lots of businesses attempt to duck this by donating heavily to both parties, which suits both parties fine...)

Closest I've got to a solution is small government. If the government doesn't have a finger in every pie, they can't compel massive donations, which limits the paid-for media blitz; politicians have to take actual positions to get press and exposure, and debate about those positions is more likely to split the electorate into a majority and minority than the results of finely-calibrated-and-test-grouped dissemination of a manufactured message.