There's a limit on the amount of mobs that can be in a chunk to keep people from hoarding tons of passives.

The way that you breed is to have your breeders, two to a chunk, spaced out and then breed them, take the children somewhere else, and there you go.

The reason they're not breeding is probably because there's too many passives in the same chunk, which keeps them from producing more.

Do what *everybody* (including staff) does, drop them on slaps and let water move them around in a circle out of your chunk to keep them alive, feed them, breed them, and use their resources. You can get up to 25 a chunk easily that way, which I am sure is enough for some wool or food.