Yes, the treaty did place severe limitations on building a military, developing and producing weapons, maintaining a fleet, etc. But they did it anyway.

Almost right from the beginning, the Weimar government violated the treaty. Initially it was mainly covert, missing disarmament deadlines, moving weapons production and testing to outside Germany e.g. Krupp buying Bofors, secret clauses in treaties allowing Germany to develop weapons in the Soviet Union.

Many street gangs were allowed and encouraged to become well-trained militia who could potentially help in any future war, this included the SA. Police forces were militarised too.

After the Nazis came to power it became more overt, but still included covert methods, e.g. civilian 'glider clubs' which were in reality for military pilot training, dummy corporations (e.g. MEFO) set up to hide the government's involvement in weapons purchases, funneling money from the government to Krupp, Rheinmetall et al.

In 1935 rearmament was publicly announced and conscription reintroduced and the Luftwaffe revealed publicly.

The failure of the other signatories to stop this can be seen in the context of the policy of appeasement, making concessions in order to avoid a war.

In the 1930s there was strong anti-war sentiment among the public and the politicians, having relatively recently gone through the trauma of WWI there was little appetite for another. The rise of fascism was also seen as being useful in combatting the influence and spread of communism. There was even some regret over the Treaty of Versailles being too punishing and unfair, in 1935 Germany and the UK concluded the Anglo-German Naval Treaty, allowing Germany to build a navy 35% of the UK's total tonnage, far beyond the Versailles limits. This was supposed to be a start in a series of treaties limiting Germany to a more reasonable military, but still limiting them.

It's worth noting as well that the UK and France didn't just do nothing, they too rearmed to the best of their (and their economies') abilities and did try to use diplomatic and economic means to rein in the Nazis.

Some other relevant answers: https://www.reddit.com/r/AskHistorians/comments/6fkuls/why_did_france_and_especially_gb_not_respond_more/diizaaj/ u/seemore__glass

https://www.reddit.com/r/AskHistorians/comments/15ujal/why_didnt_france_and_england_take_action_as/c7px8eb/ u/Manfromporlock