One main reason for not declaring war was fear.

France/England declared war on Germany for several reasons:

• Germany had annexed Austria;
• Germany promised it would not conquer any more land;
• There was an ultimatum over Germany that France had to fulfill.

Although all this reasons, after the declaration of war, there was no main battles between France/England and Germany/Italy. France was still wanting to maintain peace in the country.

The Soviet Union was expanding much less than Germany, and mainly due to mutual agreements. Finally when it tried to conquer Finland, the Allies just expelled them from the League of Nations, the Allies wanted a peaceful world, not another war.

I guess the main reasons for not declaring war were:

• There was no ultimatum
• Fear that the Allies would face an alliance between Soviet and Axis.
• Soviet Union was not such a threat as Germany was for France.