You didn’t hit a java-specific limitation, but a system dependent limit. This is best illustrated by the fact, that the attempt to set the CLASSPATH variable fails as well, but setting an environment variable via export name=value in the shell isn’t related to Java.
As said by others, you could try to use wildcards for jar files within the same directory, but you have to care that Java does the expansion rather than the shell, as in the latter case, it would again yield a too long command line. So you have to escape the * character to ensure it will not be processed by the shell.
javac supports reading the command line arguments from an external file specified via @filename, but unfortunately, the java launcher doesn’t support this option.
An alternative would be to create symbolic links pointing to the jar files, having shorter paths and specifying these. You could even combine the approaches by creating one directory full of symbolic links and specifying that/directory/* as class path.
But there seems to be a logical error in the requirement. In a comment, you are mentioning “code analysis” and an analyzing tool should not require having the code to analyze in its own application class path. You can access class files via ordinary I/O, if you want to read and parse them. In case you want to load them, e.g. for using the builtin Reflection, you can create new ClassLoader instances pointing to the locations. So the tool doesn’t depend on the application class path and could read the locations from a configuration file, for example.
Using distinct class loaders has the additional advantage that you can close them when you’re done.
