What explains why only two parties form in the U.S., while most other
large countries have more than strictly two, such as France or Israel?
Are there ways to encourage third parties to form and would that be
desirable? What are good sources to examin about this? I want the
question in the frame of comparing the U.S with France and Israel.

Greetings!
Thanks for the interesting question.  The primary cause which gave
rise to the two party American system can be traced back to the
constitution.

The way congressional elections work in the United States is based on
one member per district based on a plurality of the vote.  To put it
another way, each congressional district receives only one seat in the
house.  As a result, whoever receives the most votes in a
congressional district wins while all the other votes cast in that
district essentially do not matter.  This system is commonly referred
to by political scientists as a "First Past the Post" system.

This contrasts with other political systems, such as Israel because
they use a proportional system.  The idea behind this system is that
everyone should be represented, not just the majority in a particular
district.  In a proportional system there is more then one seat per
district.  The seats are assigned exactly as they sound, based on a
proportion of the vote.

So for example, if there was a district which had 10 seats in it and
one party received 40% of the vote, they would be awarded 4 seats. 
While someone who received 30% of the vote would get 3 seats.

http://www.mtholyoke.edu/acad/polit/damy/BeginnningReading/howprwor.htm

The explanation on why the single member districts in the United
States lead to a two party system is known as Duverger's law.

"Duverger's Law is a principle which asserts that a
first-past-the-post election system naturally leads to a two-party
system. The discovery of this principle is attributed to Maurice
Duverger, a French sociologist who observed the effect and recorded it
in several papers published in the 1950s and 1960s. In the course of
further research, other political scientists began calling the effect
a ?law?."

http://www.reference.com/browse/wiki/Duverger%27s_law

"When constituencies (districts) vote for candidates on the basis of a
geographical constituency, all votes for candidates other than the
winner count for nothing. This reflects another factor that encourages
a two party system: smaller parties often cannot win enough votes in a
constituency because they have smaller support and sometimes more
scattered support than larger parties. Often a first-past-the-post
electoral system and the election of candidates from geographical
constituencies (districts) appear together in a single political
system: this means that some smaller parties can garner a significant
proportional of votes nationally, but receive few constituency seats
and thus cannot realistically expect to compete overall on an equal
footing with larger country-wide parties."
http://en.wikipedia.org/wiki/Duverger's_Law
In interesting effect of this is that even when third parties do
manage to rise up it is often at the expense of an existing major
party and the system will come back to a two party system before too
long.

France uses a variation of single member districts found in the United
States.  The French system is known as a "Majoritarian system" and
uses run off elections when no one in a district manages to get 50% of
the vote plus one.

"Second Ballot Majority Runoff or absolute majority. This system
requires a candidate to obtain one more vote than half the votes cast
in order to be elected. If no candidate gets that many votes, a second
round is held. In this system, either a simple majority is sufficient
in the second round, or a "run-off" election is held between the two
candidates who received the most votes in the first round, also along
absolute majority lines. France and the Ukraine both use variations of
this system."

Many political scientists believe that France may eventually become a
stable two party government because of the system they use.  The
two-ballot voting in France lends itself better to multiple parties
because the threshold to make it onto the second ballot is limited to
12.5%

The question of how to encourage third parties in the United States is
a tough one.  Since there is a systemic cause to the two parties it
would require a change in our entire system of elections to bring
about a strong multi-party system.

Another possible option would be to require federally financed
elections with strict money limits and no personal contributions. 
This would level the playing field among the parties and take away one
of the advantages of incumbency.  This would require a constitutional
amendment however as the Supreme Court has decided that money equals
speech.

Whether it would be a good thing or not is an equally muddy question. 
There are pros and cons to our current system as their are to a multi
party system.

Among the pro's are...
*Less influence from the fringe elements of a society.
*A two party system requires both parties to often appeal to the
center of the electorate in order to gain a majority.
*"Two-party systems, especially those where power often changes hands,
appear less prone to revolutions, coups, or civil wars."
http://en.wikipedia.org/wiki/Two-party_system#Examples
*With only two parties they have to appeal to a wide variety of
people, so it is less likely that the party will center itself around
a single issue.
The biggest con of a two-party system is that not everyone is
represented.  This can lead to a tyranny of the majority easier.  A
perfect example of one of the faults is in the super close races
people love to watch so much.  In an election where one person wins
by, say 1% of the vote, the result is that 49% of the voters are left
with their issues unrepresented.

Another problem is that the broad, umbrella style of the parties means
that people will be less likely to identify completely with it.  While
a smaller third party may be more aligned with a person's particular
views they are forced to go with someone who shares more but
represents the "lesser of two evils".

Overall the question of whether it'd be desirable to move to a
multi-party system relies on the values of who is asking the question.
 While there are pros and cons to both it is hard to objectively
identify a clear winner.

One source that would be excellent reading on the subject would be
Duverger's essay, titled "Factors in a Two-Party and Multiparty
system".

http://www.janda.org/c24/Readings/Duverger/Duverger.htm

I hope this answers your question.  If you need anything clarified
please request a clarification and I will be happy to help.

Best,
djbaker-ga


Links you may find interesting...

How Proportional Representation Elections Work
http://www.mtholyoke.edu/acad/polit/damy/BeginnningReading/howprwor.htm

Types of Party Systems
http://janda.org/c24/Readings/Blondel/blondel.html

Types of Electoral Systems
http://janda.org/b20/Lectures/Week%205/W5-1Electoral_systems.htm

Search Terms Used:
two-ballot system multi parties
://www.google.com/search?q=two-ballot+system+multi+parties&hl=en

Duverger's Law
://www.google.com/search?q=Duverger%27s+law&hl=en

france electoral system multi party
://www.google.com/search?q=france+electoral+system+multi+party&hl=en&lr=

That was a great response to my question. Thanks!!

An excellent answer to a broad question!

When consider the pros and cons of the two-party system, it could also
be pointed out:

Pro (and I don't have any cons, having lived with the German voting
system, but they will be mentioned in contrast):

Although it is claimed that the two-party system disenfranchises those
voters whose candidates were not elected, a successful candidate must
appeal to the majority of the voters in his or her district, and then
once in office show responsibility to them, broadly representing THEIR
interests.  If not, s/he will be voted out of office; the so-called
"disenfranchised" voters DO have their vote and influence.
Thus s/he cannot pursue strict a party policy  - ideology -  that runs
counter to what the majority cares about.  This occurs in multi-party
systems, which allow and support parties with narrow platforms
(Greens, right and left wings, in Israel, ultra-orthodox).  In
multi-party systems, party policy is strict, the elected
representative are more beholden to their party than they are to their
general electorate.
Not just because of ideological party allegience, in multi-party
systems, party candidates are listed on the ballot in the order chosen
by the party caucus.  A "free-thinker" candidate will find it
difficult to be selected to a position on the list that assures his
(re)election.
(In Germany, there have been changes in local elections to allow
voters to "cumulate" their votes in favor of individuals, thus
allowing poorly placed but popular candidate to be moved up the list
when the votes are counted.  This is, in fact, an admission of this
"con" in the system.)
Multi-party elections result in coalitions  - of course.  At a
distance, this seems merely logical, but in practice it means that a
hard-fought coalition contract between the ruling parties is drawn up,
one which forces concessions by both or more parties so that each of
their election platforms is watered down.  Their voters  - regardless
of which of these parties they voted for -  are not getting the
platform on which they made their decision.  Furthermore, the
"horse-trading" necessary to agree on the contract can result in
policies that are counter to what the majority of the total
representative and the populace feel should be implemented.
E.g., when the ruling major party in the coalition goes along with the
Greens by agreeing to avoid expansion of an airport, a point on the
major party's original platform, and also on that of its major
opposition party, which has happened in Germany.
The party ballot list, mentioned above, generally assures that party
leaders are always reelected, since they have secure positions at the
top of the lists.  Thus those individuals who are responsible for the
party are not subject to voter discontent.  Even if the party loses an
election, they are reelected and can carry on ( candidates further
down the list don't get reelected), regardless of the fact that the
party leaders were the ones responsible for what led to the
discontent.
Multi-party systems are very unfriendly to outsiders.  One must prove
one's party loyalty to become a candidate, start young and be a party
soldier.  This is onerous to individuals who can and/or have a
successful career.  This deprives the parties and the parliament of
representatives with experience in the business world, persons who
understand market economics.

Although I hope that the opinions about the French system moving
towards a two-party one are correct, in Germany with its different
electoral system this is not the case.  On the contrary, instead of
two major parties and the minor Liberals, now there are also Greens,
and one (two?) even lesser party/ies.  On the local level, this
increase in parties is even more pronounced, which does not make
governing or government better,   in my opinion.

Interestingly, one of the leading German political scientists, H.H.
von Arnim, a critic of misuse of political power, has in recent years
come to favoer the two-party system.

There is something called 'immobillism'

One wonders about how many  'b's  'm's and 'ls'

But the one thing you can be sure is, that rather than getting on with
doing the wrong thing right (and learning from the experience) they
will be playing musical chairs.

A long time ago an authoritive source told me that
- two individuals will collude
- with three - one will grass on the rest

Extrapolating, it seems a pretty good argument for two party government

Personally I would like to see the re-appearance of some hard arsed c*nts
Hesiltine has been taunting, despite the well known location of his
last (well deserved, or enjoyed) heart attack - Italy
- and why not Carpe Diem or Carpe Totty ( roughly equivalent )