I wave, too, but I don't see other drivers do it very much these days when I'm in the city. I live in rural Queensland, Australia, and there's not much call for letting someone in - we only have one lane either way
We do use the index finger off the steering wheel to acknowledge someone we know in and around town.
Flashing headlights at oncoming traffic means one of 2 things (in Australia, at least)
1) To warn oncoming traffic that the police are up ahead (usually with a speed camera) - this is frowned upon by the police.,
2) To warn oncoming traffic of a serious hazard up ahead.