Summary: King Gyandendra surrendered his power because his army wasn’t strong enough. The Royal Nepal army’s ineptitude and corruption was the reason behind poor preparedness against the insurgency; aided by US-Indo refusal to supply arms.
http://articles.timesofindia.indiatimes.com/2011-09-05/south-asia/30115173_1_rna-royal-nepalese-army-royal-coup
KATHMANDU: When Nepal's controversial king Gyanendra Bir Bikram Shah handed over power to a resurrected parliament on April 24, 2006 and faced the abolition of his throne, it might not have been entirely the thought of his subjects' wellbeing that prompted the move.
While royalists say the monarch, who had seized power through a bloodless coup the previous year, stepped down because he wanted to avert the bloodshed that would have occurred had the army been asked to take on the crowds demanding the restoration of democracy, the real reason could be that the Royal Nepalese Army (RNA) was running out of ammunition.
In February and March 2006, days before the 19 days' peaceful protests that paralysed the royal regime started, the RNA's arsenal had started dwindling alarmingly after its main arms suppliers, India, the US and UK, stopped providing arms the previous year to show their disapproval of the royal coup, according to the latest Wikileaks revelations
Source: Nepal news, wikileaks, Times of India