Hi, Mary - One of the major reasons for liturgical renewal after the Second Vatican Council was that the liturgy had become corrupted, that it had taken on many of the European monarchical trappings of the Middle Ages. It was in Latin, a language few people understood - and yet it was originally translated from Greek to Latin because Latin was more widely understood. So what you saw before Vatican II was a medieval creation, far less authentic that what we have now (not that a lot of conservative Catholics will believe that).

In the process of reform, liturgists chiefly tried to restore the ancient liturgy, rather than come up with new things. This practice of extending the arm as a sign of blessing is one of those ancient practices. Mind you, though, I do not believe this gesture by the congregation is part of the official liturgy - but you're seeing it in a blessing, not as part of the liturgy. Still, it's in keeping with ancient tradition - you're just not used to seeing a blessing extended by a number of people, all at the same time (Blessings are official prayers, but most are not part of the liturgy).

-Joe Offer-