So I've been (very slowly) working on a paper for the past three years that partially addresses this subject, and I'll give a lot bit of the argument. The Jews-surviving-in-Europe part is a fairly minor part of the paper, but I think this perspective explains it well. First, I need to give you a little background on the sociology of religion.

One of the major perspectives in the sociology of religion is called the "markets for religion" or "religious economies" model. You can read more about it on Wikipedia. I put it in perspective of some of the other macro- approaches to religion in the social sciences in this comment here. The relevant part of that comment is this:

ECONOMIES OF RELIGION Stark, Bainbridge, Finke, Iannaccone, etc. This is the one getting the most play in this thread so far (but without anyone citing any of the actual literature on this). Basic theory: America had an "unregulated market for religion" where people could switch religions freely, meaning religious organizations provided good services--in Europe, with its "regulated religious market", people couldn't switch religions as freely so organizations had no incentive to provide good services. Demand dropped because quality fell. These were the first guys to argue that the "secularization paradigm" might be fundamentally flawed (the secularization paradigm argued that demand dropped because "with modernity", we had no demand for religion). Of course, most scholars pointed out that secularization includes at least three parts (decline of individual belief, separation of spheres, privatization; privatization is definitely more common in Western Europe than America), but economies of religion paradigm only examines secularization as the decline of individual belief. Anyway, their main argument is that secularization has supply-side explanations, not demand-side ones. In America, where there are no supply-side restrictions (anyone can start a church!), demand is high because robust competition means there's something for everyone. Conversely, they argue, in Europe where there are state churches ("monopolies) and it's harder to start new sects (in the technical sense), religious organizations "provide an inferior product" and this is what is driving decreased demand. There are problems with this model, I fundamentally disagree with it, but looking at Europe and America, it does highlight many important things, and it changed the terms of the debate about secularization (which was assumed to be more or less inevitable).

One of the things I argue in this paper is that these people have taken a very limited view of how much governments structure these "markets for religion". They generally consider "state church vs. non-state church". Occasionally they look at how in atheist communist countries tried to crush these religious markets (Froese has a pretty good book about religion in the Soviet Union called The Plot to Kill God).

What I argue is that the governments and societies often sharply limited what options were available. This comes out of this guy Fenggang Yang's work who wrote about the "the Red, Black, and Gray" markets for religion in contemporary China. The Red market is the completely licit, government approved market, the Black market is completely forbidden (think Falung Gong/Falung Dafa, or the position of the Dalai Lama, if you're familiar with either of those), and the Gray market is sometimes ignored, sometimes approved of, sometimes heavily restricted, and sometimes suppressed (these are like the Protestant missionaries and house churches outside the official Three-Self Patriotic Movement).

Now, getting back to Europe, by the medieval era in Europe, the only official religion allowed was the Christian Church (to simplify things a lot, Catholic in the West, Orthodox in the East). However, Christianity recognized a special somewhat tolerated place for Judaism in the mix. Jews worshipped the same God... but they also killed the Son of that God. They were often tolerated, but not always. And they practiced within set limits--Jews were generally restricted where they could live, restricted in how publicly they practiced, restricted in what they could wear, restricted in obtaining converts, restricted in their recourse to the law, etc. But they were usually allowed to exist. Paganism, on the other hand, was not allowed to exist. So Judaism survived because Christianity recognized it as a religion--not the True religion, of course, but a religion. Paganism was just paganism. J. Z. Smith has a great article about how "religion" as a concept developed from something that "we" had to something that everyone had, mostly through the colonial encounter. See Religion, Religions, Religious.

A good comparison would be to Islam, which also recognized some religions as licit but subservient, and paganism as something to be destroyed. Christian, Jewish, and Zoroastrian communities were protected but restricted as "dhimmis", as was a sort of wildcard group called Sabians. Since it was unclear who the Sabians were, though they were mentioned in the Quran, they became a way to recognize certain minority communities--this had been used to recognize the Yezidi, Mandaeans, etc. even, if I'm not mistaken, Hindus under the Mughals. But the point is, Islam recognizes these communities and grants them some rights, which were not extended to "the pagans" (nor to splits from Islam, like the Baha'i Faith or Ahmadiyya, both of which have been heavily persecuted since their emergence in the 19th century).

But the point is that Judaism was recognized as a real, if incomplete, religion by Christians and therefore allowed to exist in a way that Pagans simply were not.

A large reason as to why the pagan religions died out in the Middle Ages is that the people who practiced those religions were gradually subjugated and forcibly converted by Christian political entities such as the Holy Roman Empire and the Teutonic Order. There was a religious aspect to this, but it was also a political tool that helped to absorb the conquered population and bring it more firmly under the control of the Christian political entity. Charlemagne believed that he was doing holy work by converting the pagan Saxons to Christianity, but it also served as a means of integrating them into Christian Europe and preventing them from harassing the Holy Roman Empire. The same can be said of the Teutonic Order and its campaigns to subdue and convert the pagan people of the Baltic region.