I have two items for this post:
1. I read an article by Jack Lightstone, "Form As Meaning in Halakic Midrash", which appeared in the January 1, 1983 Semeia. Lightstone discusses the contribution of Rene Bloch, which he considers to be problematic. Bloch had a diachronic approach to midrash, which meant that she'd look at different interpretations of a particular verse throughout history. I can't say that I completely understand Lightstone's problem with that, but I think that one of his issues is that he doesn't like all of those interpretations throughout history being classified as midrash; rather, he wants to look at rabbinic literature itself to determine what midrash is. And he seeks to look at each piece of rabbinic literature in its particularity---to see its methods of interacting with the Scripture---rather than lumping it under the name of "midrash" with other interpretations in history, as if they're all the same thing (when they're not), or their main ingredient is the interpretation they arrive at, rather than the methodology of getting there (that may be what Lightstone considers to be midrash---when it comes to the rabbis, that is).
What Lightstone highlights in this article is a method in the Mekhilta de-Rabbi Ishmael. The method goes as follows:
"Scripture A means x. Does it mean x or might it not mean y? But Scripture B undermines y and/or supports x."
This method does two things. First of all, it says that Scripture is a holistic document, which is why Scripture b can be used to interpret Scripture a, even if they're from different places in the Hebrew Bible. Second, it says that we should not rely on logic alone, but on Scripture. One may logically think that Scripture A means something, but, if another Scripture shows that it means something else, then Scripture takes precedence over logic. According to Lightstone, the Mekhilta wasn't as hard on logic as the Sifra, but it still tried to show that Scripture had priority.
2. In History and Ideology in Ancient Israel, Giovanni Garbini says a few times that the Hebrew Bible's reference to a nation is allegorical. He interprets Isaiah 14 to be about the fall of Xerxes of Persia, even though the text claims to concern the fall of the king of Babylon. On page 191, he states, "we must ask whether the difficult passage Gen. 15.13-16 was not originally an allusion to the Babylonian exile (rather than to that of Egypt) made in such a way as to give a long duration to the Chaldean dynasty." Garbini may believe that the Hebrew writers used allegory because they did not want to appear as subversive to their captors.
I wondered, though, about Psalm 137. Doesn't that express hope that Babylonian babies will be dashed into rocks, while the Jews are at the waters of Babylon? In my reading of Sigmund Mowinkel's The Psalms in Israel's Worship, Volume 2, however, I encountered another interpretation: that Psalm 137 is hoping that Edomite babies will be dashed into rocks. In the Hebrew Bible, there is animus against Edom, for it is said to have profited off of Judah's defeat at the hands of the Babylonians. But the Babylonians probably wouldn't have cared what the Jews thought about Edom---just as long as they weren't subversive against the Babylonians.
At the same time, there are prophecies that discuss the fall of Babylon. Are these allegorical---referring to a later captor?