Sheep

Sheep are passive mobs that first appeared in Survival Test mode. They act much like pigs, wandering aimlessly and usually spawning in herds of two to eight individuals.

It is possible to gain cloth by hitting the sheep with any object, including bare fists. This, however, damages the sheep and repetitive shearing will kill it. To shear the sheep without hurting it, use snowballs or a fishing rod. The sheep will drop 1-3 units of cloth blocks on when first hit. Damage taken from fire or drowning does not trigger shearing. Sheep that have been sheared will exhibit a 'sheared' skin and cannot be harvested again in Alpha mode.

Sheep do not yield any drops upon death, and the only reason to kill them is to prevent them from inadvertently pushing players over cliffs or into lava.

History
In Survival Test, sheep eat Grass which reverts the blocks to Dirt. Upon eating three blocks of grass, they will have their dropped Cloth regrown. Sheep do not stray far from the area they spawn at; but having spawned at a place that lacks grass will make the sheep migrate to a place with grass.

Like pigs, they also used to drop Brown Mushrooms upon death.

Drops
Survival Test
 * 0-2 Brown Mushrooms (on death)

Alpha
 * 1-3 cloth blocks (on hit)