  Recently we have studied the Bloch effective Hamiltonian approach to bound
states in 2+1 dimensional gauge theories. Numerical calculations were carried
out to investigate the vanishing energy denominator problem. In this work we
study similarity renormalization approach to the same problem. By performing
analytical calculations with a step function form for the similarity factor, we
show that in addition to curing the vanishing energy denominator problem,
similarity approach generates linear confining interaction for large transverse
separations. However, for large longitudinal separations, the generated
interaction grows only as the square root of the longitudinal separation and
hence produces violations of rotational symmetry in the spectrum. We carry out
numerical studies in the G{\l}azek-Wilson and Wegner formalisms and present low
lying eigenvalues and wavefunctions. We investigate the sensitivity of the
spectra to various parameterizations of the similarity factor and other
parameters of the effective Hamiltonian, especially the scale $\sigma$. Our
results illustrate the need for higher order calculations of the effective
Hamiltonian in the similarity renormalization scheme.
