Originally Posted by Mike Irwin
1. They were rebuilding an army largely from scratch, and the K98k was available, and proven. Semi-autos weren't really available, and certainly weren't proven at that time.
2. Given that they were trying to get their military back online, there wasn't a lot of manufacturing bandwidth left over to start full-scale production of an entirely new rifle.
Do want to add a little bit here...
To think Germany needed to completely rebuild after WWI is a little bit of a stretch. Yea, 100,000 men in the armed forces is small, but there were ways to get around it... such as para-military organizations (prime example, the SA). Those 100,000 men were mostly comprised of officers, so that the leadership could quickly fill into a larger body (what occurred when the SA was dissolved and those members joined the Army). Aircraft were acquired in secret, but using them for non-military purposes got them in the know. When the Nazis came to power, it wasn't as hushed as it was prior, and then Hitler reached a point where he didn't care what the winners of WWI knew (all did not want to go to war and kill another generation).
As was mentioned, most European armies used the Mauser design. If a conquered country had a large arms plant (or multiple ones), convert the rifles over to what you use, and crank them out. If it were the Soviets doing the land grabbing, they probably would have designed a combo so they could get more rifles into their soldiers hands... like a longer 7.62x39 (main thing, not rimmed).
It was a good thing that there wasn't a smaller conflict that the US used the Garand in prior to WWII (like a Spanish Civil War). If people found out the background of that rifle before the war, and seen its strengths/weaknesses, there would have been A LOT more deaths.