I think Ancelotti actually rates him, so wanted him back at Madrid. I suspect that Bale maybe wanted to give another season at Madrid, possibly to patch it up a little with the club and leave on better terms... I don't know if that's true or not, but that might make some sense, because he left on bad terms last year and if I was him I'd want a good future relationship with a club like that who I'd played for for several years... and had some cracking times with.
...plus maybe at our end, he was expensive and Levy didn't think he'd be worth the effort, or it wasn't going to work out for everybody... I dunno?