To not too drastically oversimplify things, Middle Eastern society maintained its conservative roots throughout the modern era. In fact in some cases, it replanted roots which had long withered after the intrinsic, inevitable fading of a high culture. Western hegemony curiously aided this process in some respects (Wahhabism), in contrast to many other areas subject to our influence. Societal conservatism has served it rather poorly in an era in which rapid growth has led to prosperity.
However, as we have already seen in the course of the recent financial crisis and recession (where Islamic banking laws spared the Middle East from much of the pain), societal conservatism may serve the Middle East in an era when rapid change leads to disaster.
There are a few basic things which didn't pose an inherent disadvantage at the time the laws and doctrines of Islam were laid down and they didn't directly cause a strict decline in activity but they did handicap overall development. These had a very stubborn way of setting themselves in stone. Much stronger than the verses that were posted had on Christianity.
1.) Islamic inheritance laws make it difficult to accumulate capital and build wealth. Whereas in Europe there were innovations with regards to new ways of raising money through pooling risks through joint-stock corporations and bourses.
One of the biggest differences with inheritance laws is that a single business had to be divided equally amongst all the heirs. In Europe it was OK to simply allow a single person the largest piece of the pie, making it easier for him to be groomed to run it. This allowed family businesses to last beyond more than a single generation.
One thing that Gully hasn't really directly addressed is why in major Middle Eastern cities had credit/business/investing practices that were in large part the same in 1800 as they were in 1000. But had changed in Europe.
2.) Ban on interest basically meant that this activity was to be done by non-Muslims. To this day the wealthiest in Indonesia are the Chinese. Apart from the Ismailis of Gujarat, Muslims are comparatively worse off when compared to Hindus and Sikhs. The Maronites are the upper class in Lebanon and the Shi'ites are the downtrodden, Sunnis are better off but they had always been at least under the Ummayads, Abbassids and Ottomans.
Since who would be willing to bear the risk? Even 1% inflation means -1% return. Even than many Muslim institutions do have interest disguised as user fees and companies like Citibank have more sharia-complaint assets on their balance sheet than even Islamic banks in the Arab world, Pakistan, Malaysia.
3.) There really isn't any concept of a corporation in Islamic law. This makes it difficult to come up with things like stock markets to raise money to grow a company. This was one of the ways that Europe had been able to afford imperialism over the long run the first place.
4.) A lot of money is locked up in waqf's and ends up being used for semi-unproductive purposes like building cemetaries or religious schools.
Of course. Reserve ratios tend to be extremely high in Muslim countries like 80% in Jordan for example.
