From this quote from Ariel Sharon in Pollard's website, I get the impression that the reason Pollard is still in jail is because the US wants Israel to return the documents and information Pollard stole from the US and gave to Israel, but Israel refuses to do so. My guess is that if Israel would return the stolen materials, Pollard would probably have his sentence reduced.

SHARON: "This is the worst problem. To tell the truth, it did not have to be handled this way. I can only say that it happened many years ago. At the time I had nothing whatsoever to do with the affair. It happened when I was no longer the Minister of Defense. I opposed commissioning an official investigation in Israel, but they told me that we had already promised [the US] that we would have one. Afterwards there was a discussion [in the Cabinet] and the idea came up about returning the documents. I was opposed and I said that we are sealing his fate to at least a life sentence. I don't want to say at this time what the other responses were, even from our own [Likud] people, because I do not want to cause any further pain."