The B737 fuselage design dates back to the 1950s, the later designed B767/757 are already obsolete and except for a few specialised variants, out of production. It should have been obvious to Boeing back in the 1980s that they needed a new airframe for their bread and butter narrowbody. Possibly they didn't see the new A320 as a threat and weren't willing to invest the money in a new design. Even at 30 years old the A320 is still a fantastic aircraft which is still able to be updated without mutating it into something the original designer wouldn't recognise. New sharklet wings and next generation engines have improved it's efficiency considerably, update the flight deck and there is no reason for it not to go on for another 20 years.
Boeing would need to spend billions on a new design which would be unlikely to offer significant improvements over the current A320 series, and the selling price would need to recoup the development costs. Margins at the economy end of the market aren't as much as at the higher widebody long haul end and it would take many years to get back into the black.