junction-boxlath-and-plasterlighting
It's a very old house that the ceiling is made out of lath and plaster so it would be too much work to dig a hole to put in a large junction box for the wires. They won't fit in the base of the light fixture so it leaves a 1 inch gap.
What could I use to blend it in and make this work?
You can get a condiment cup or similar and just drill a hole in the middle of the bottom. Here's one, that runs $1.50, but there will likely be about a billion to choose from, so you can surely find the right diameter somewhere.
There is a category of power tool called a multi-tool that is basically a very small saw usefull in cutting in tight spaces.
After you cut the initial hole, this tool could be used to trim away the area in the uper section on an angle to make room for your retaining arms.
The tools come in corded and cordless version, and at various price points. The are very handy and can do other things, such as spot sanding and grinding.
Best Answer
Wires and connections must be contained in an enclosure that is designed for that purpose. You might be able to find a decorative canopy extension ring at a good lighting and/or fan shop. it might look something like this: