That's a weighty question for a message board when historians and military analysts have devoted millions of pages to answer it.
Actually, per the Versailles Treaty and League of Nations the Allies had both the right and the obligation to prevent Germany from rearming and to react to Japan's aggression in Manchuria (not to mention Italy in Ethiopia) but they failed to act other than a few protests and a very weak embargo against Italy.
The two major allies, Britain and France, as forementioned, were exhausted and nearly bankrupt from WWI, plus the effects of the worldwide depression. Some also looked at a strong rearmed Germany as a bulwark against Russia; communism was regarded as a greater threat to world peace than fascism or naziism in the '20s and '30s. France's government was split between the right and left for most of those decades, and unfortunately Britain also had some pretty weak leaders, notably Baldwin and Chamberlain. Churchill, who did recognize the danger of Hitler and a rearmed Germany, was in the political wilderness until 1939; he was actually regarded as a dangerous political wild man by most of those in power.
Of course the USA was sitting on the sidelines. Roosevelt seemed to recognize the danger by the mid '30s, but between the problems faced at home and the isolationist sentiment of the majority of Americans, there wasn't much he could do until the war actually started, and by then it was too late.
Stalin apparently made overtures to the western powers, but they were either ignored or brushed aside. Allied diplomats sailed to Russia in the summer of '39, but they didn't even have the credentials to make a treaty; they were on their way back home when Ribbentrop flew to Moscow and signed the Nazi-Soviet Non-Aggression Pact (and incidentally dividing Poland and placing the Baltic States in the Soviet zone of influence.
That's a nutshell account. I suggest reading William Shirer's "Rise and Fall of the Third Reich" if you want deeper understanding.
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