The simplist answer to this is that they were in the wrong- goodness was destined, somehow, to triumph against even the most seemingly unsurmountable evils.
Ultimately, the main reason for his downfall and that of the regime was their evil nature. Whatever dark forces helped him to build up that tremendous army so quickly and hypnotically transfix a whole nation were no match for the powers of goodness.
Had he been more sane, kept calculating rather than act impulsively, surely without defeating many of his enemies, he could have reached an understanding and maintained a limited ‘Reich’ that would have been too costly to invade. A more restrained Hitler would have been a terrible adversary, holding enough forces in reserve to make D-Day too costly to carry out.
We are lucky, in fact that he was so closely identified with evil that forces we would call good galvanised themselves to take care of the problem, however great the cost. For evil is craziness, a misunderstanding of the way reality actually is and a failure to understand the cause and effect relationships that will make it’s intentions impossible to realise. History’s purest yet expression of evil called forth the purest forces of good to oppose it. For me, it’s as clear cut as history gets.
Just sticking to the conventional, historical factors, (though I think whatever had happened, Hitler's craziness would have gotten in the way), I can identify several main reasons-
1) Underestimating the Russians with Barbarossa. Russia is known as an 'unconquerable' nation due to the harsh winter and stubborn people, who could unite against an aggressor like nothing else. By not capturing Moscow as a priority and trying to fight on without preparations for the winter, Hitler was being extremely unrealistic.
2) The lack of enough intelligent propaganda leveled at conquered nations. Although this would go straight against Hitler's twisted world view, presenting themselves as a liberating army to conquered people could have won them valuable allies. In many cases, there were great opportunities here- many people would be happy to be freed from the Soviet Union, or for that matter, from the European Empires they lived in. Yet with great cruelty, the Nazis created new enemies in many places, rather than take the route of 'empire building' through flattery that had worked so well for others.
3) Underestimating Britain. In this, I mean the geographic factors of the channel as much as the people's resolve and technological ingenuity. In fact, it seems obvious to me that Hitler held out the hope that Britain would join him as a somewhat 'fellow Aryan nation', so long as their empire was preserved. Yet such thinking went clearly against that of the British public and was made all the more impossible by the targeting of British cities (even if German cities had themselves been targeted). Hitler's fantasies were not shared and he for long refused to believe it.
4) I put this in order of historical eventuality, not importance, but the declaration of war on the US was a foolish mistake. No doubt the mistaken idea that a prosperous democracy is 'soft' lay behind this, but America's commitment and vast resources were (and still are) unprecedented. That said, had he left them tied up with Japan they might well have hesitated to be drawn into a 'European problem' and restricted themselves to arming friendly countries like Britain for years. Again, we can see Hitler's craziness at work.
5) At heart we have the arrogance and lack of diplomacy at the heart of the Nazi movement, but there was the lack of seriousness in seeking and co-ordinating with Allies. Italy was possibly worse than useless. Spain wasn't brought in and Japan given to fits of fanaticism that couldn't be sustained by her natural resources the way Russia's behaviour was. Fascism was thankfully a flash in the pan (I hope), but a good reason for this was the lack of co-ordination. Attacking Russia in unison, for example, would have made more sense than Japan bringing America into the fray.
6) Antisemitism and lunatic racial theories. This meant that not only in conquered countries, but even from the German population itself, many opportunities were missed. Genius scientists like Einstein went to work for the allies, though presumably if Hitler had kept his personal feelings to himself, he would have had their assistance, though of course this all goes quite against the very essence of the lunatic ideas he entertained. Thinking your own race is superior is one thing. Thinking that entitles you to turn others into hard-labour slaves is another and apart from the immorality involved, it resulted in an inefficient use of labour, resulting in a poorer economy than otherwise possible.
6) Misapplication of technology. Germany had some of the world's best scientists and it is well known that they pioneered dive bombers, submarines, jet aircraft and even ballistic missiles, but the problem with these projects is that they lead to complex and expensive designs that were hard to mass produce as needed. When coupled with an irrationally rushed desire to 'take on the world', they just couldn't be produced fast enough.
7) Hitler refusing to listen to other's advice. Of course, the achilles heel to the whole project, aside from it being despotic and therefor inherently short-lived, was the leader's arrogance and pig-headedness. If he had simply admitted to himself he needed advice from others, it would all have been more sustainable, especially as regards strategic decisions.
I think I'll stop there, as I'm left with the distinct impression that underlying all of this is Hitler's arrogance, on a personal level amongst others. The whole movement was embodies by him, much more than say, Communism, which has it's own texts and various manifestations. Aside from being, as said, crazy, I think he was a frustrated artist at heart- his chosen creation the 'greater Germany'. For me, this explains the unrealistic decision making (which, I think we should remember, did at times work, just not very reliably) and the 'all or nothing' approach.
Fortunately, the Germany we have today is one of the most progressive and forward looking nations on the planet, yet somewhat 'denationalised' by the EU and eclipsed by greater powers like the US. I like to think we can respect what their soldiers went through and even went beyond their usual limits to achieve, without in any way condoning the whole enterprise.
I think by seeing into the Abyss and not wanting any more of it, Germany and Japan made a great effort to make a fresh start in rebuilding their countries. So, despite losing the war, I think they made a better job of learning that war's a bad thing than the winners did. Existing under American protection, though, it's been a bit easier for them to be pacifists.
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