In early 1942, the German scientists, and the German Army independently, both assessed the difficulty of a successful nuclear weapons program as being quite high. It was not something that they could guarantee would be worth the investment, inasmuch as it would not be completed in time to be used in the current war. At the time they also presumed that they were ahead of the Allies in this field, and as such assumed that nobody would be developing a nuclear weapon. They also, at the moment of decision, felt very good about the future of the war going forward, and did not feel it was necessary. So they approved of a very small reactor research program that would be useful primarily in the postwar.

In their assessment of the difficulties and risks involved, they were not incorrect. The size of the program would have been substantial, perhaps too large for Germany to complete under any conditions during the war, certainly too large to also be competing with programs like the V2. It would have required an immense commitment.

In their assumption about the Allies, we know of course that they were wrong. But the Germans could not really conceive that the US would throw its entire might at the problem — indeed the Manhattan Project was given top priority of all wartime projects in the US, and in such a role employed a huge workforce (about 1% of the civilian labor pool), and consumed immense resources (at one point it was responsible for consuming about half of the Army's steel supply). It is of note that the US estimated the job much easier than it turned out to be (the German estimate was somewhat more accurate), but by the time they had realized it was so difficult they had already committed themselves to the job. The final US decision to launch a nuclear weapons production program was made at nearly the same time that the Germans decided not to do one, as an aside.

The US, of course, was motivated by a fear of the Germans achieving nuclear weapons. Had the Germans been motivated by a similar fear, perhaps they would have chosen differently. But there is an asymmetry there that resulted in one nation putting everything it had into the problem (perhaps irrationally), and the other deciding (by quite rational guidelines) that it did not need to do so.

The best text that discusses the German decision-making on this is Mark Walker's German National Socialism and the Quest for Nuclear Power.