Being an American living in Europe, I think I can understand both sides of the question.
1) Yep, it's true, only about 10-12% of Americans have passports, but this is a for a very good reason. The U.S. is sooo big, that we never need to leave the country. Our European friends should consider that the U.S. comprises of 50 different, semi-sovereign states, each with their own economy, culture, attractions and ways of life. An American going on vacation is more likely to visit another American state rather than a European one. It's cheaper, no language differences, and best of all, it's like travelling to another foreign country without any of the hassles. I remember when I moved to San Francisco a few years ago from NYC, I was shocked at the differences. We should also not forget the many, many attractions we have in the U.S. that make an overseas trip completely unncessary. We have dozens of theme parks (the likes of which I've yet to see in Europe), magnificent national parks, both tropical and winter weather locations, plus several major cities within the same country. As if our 50 states were not enough, we also don't need passports to visit Canada, Mexico and the Caribbean. Think about it, we have the entire north American continent at our disposal, why should we get a passport?
2) Whereas a passport is necessary for identification in Europe, we simply use a drivers license. A few days ago I was in NY applying for a Sears (a popular department store) credit card, but all I had was my passport. I gave it to the store clerk, she looked at it, examined it, scratched her head and then asked if I didn't have a drivers license instead. The store computers were not set up to accept information from passports. We should also not forget that the an American drivers license is bar coded and laminated with anti-forgery devices, so that a police need only swipe the card through their computer to access your entire criminal/driving history. I've seen the licenses from Europe, and most people have that pink piece of paper. I got my Austrian drivers license last year, and that's what I got, so clearly not every country in Europe's using the new licenses. A friend of mine from Britain's lincense doesn't even have his picture in it! It's just the pink piece of paper with a few stamps and writing in it. Now I find that VERY bizarre!
3) The reason we don't use passports in the U.S. is because it is prohibited by federal law to discriminate on the basis of gender, religion, color, physical abilities, creed and nationality. Because of this very important law, no one's allowed to ask your nationality, so there exists no need to carry a passport. This is not the case in Europe where every form I fill out asks for my citizenship, even when I decided to get insurance for my cat a few weeks ago I had to produce evidence of citizenship. I also find this EXTREMELY bizarre!
4) It is a fact that most Americans know very little about foreign countries, much less foreign policy. You have to understand that when you live in a country as large as the U.S., with as influential a culture as the U.S., the plights and problems of other countries are the last things on your mind. It's sad, but the burden is on other countries to keep up with OUR culture and not the other way around.
So, there you have it, the main reasons why we don't use passports. Hope this clarifies a few things.