1) The main factor that feeds panic and suspicion is fear which turns into paranoia. In such circumstances, everyone is liable to suspicion. Once accused, nobody can really defend. Since the accusations are based on irrational reasons, the defense cannot be rational either. People are so afraid that everyone starts pointing fingers at others, hoping to save themselves. The executions don't stop even when Abigail, who has started it all with her lies, flees.
2) The officials don't listen to reason mainly because they hope to profit from this turn of events. It opens up space for corruption. People lose their property, and other people benefit from it. Reverend Parris is an epitome of this stance. He only wants to stop the proceedings when his own safety is at stake. On the other hand, Reverend Hale really believes in the just cause of witch persecution, but once he realizes its wicked and corrupt ways, he ends up a disillusioned man. He persuades people to confess because that is the only way to survive. From a man who was unable to listen to reason, he transforms into a man who is powerless to stop the horror.
