Gas in disk galaxies interacts nonlinearly with an underlying stellar spiral potential to form galactic spiral shocks. While numerical simulations typically show that spiral shocks are unstable to wiggle instability (WI) even in the absence of magnetic fields and self-gravity, its physical nature has remained uncertain. To clarify the mechanism behind the WI, we conduct a normal-mode linear stability analysis as well as nonlinear simulations assuming that the disk is isothermal and infinitesimally thin. We find that the WI is physical, originating from the generation of potential vorticity at a deformed shock front, rather than Kelvin-Helmholtz instabilities as previously thought. Since gas in galaxy rotation periodically passes through the shocks multiple times, the potential vorticity can accumulate successively, setting up a normal mode that grows exponentially with time. Eigenfunctions of the WI decay exponentially downstream from the shock front. Both shock compression of acoustic waves and a discontinuity of shear across the shock stabilize the WI. The wavelength and growth time of the WI depend on the arm strength quite sensitively. When the stellar-arm forcing is moderate at 5%, the wavelength of the most unstable mode is about 0.07 times the arm-to-arm spacing, with the growth rate comparable to the orbital angular frequency, which is found to be in good agreement with the results of numerical simulations.