Some of my thoughts:
-The AK series rifles are a lot more forgiving since they have a lot lower tolerances (and play) on their parts. This makes them cheap (to build and maintain), reliable and quite mediocre as far as accuracy goes.
-The AK series rifles are good for a mass army with low quality training, but a professional army would opt for a rifle with better accuracy with probably burst fire option.
-It is a good rifle for suppression fire and flank maneuvers. If you have a huge army, you can take the casualties and still overwhelm the enemy.
-The M-16 and its other Colt brothers are a mature technology, and they have excellent ergonomics and high accuracy. For a trained gunman who takes care of his rifle it is a better rifle. If only came in a higher caliber....
-There is a reason why many countries still use the AK-47 and new AK-100 series rifles with the "old" 7.62 ammunition. It has very good penetration, making the rifle better at urban fighting than the M-16.
I'm surprised no one mentioned the Galil rifle family: made by Israel, a close (if not closest) US ally. It marries the enduring and forgiving qualities of the AK series with modern materials and better accuracy.
http://world.guns.ru/assault/as23-e.htmTo me that seems like the ideal rifle. You have one guess, why it was passed in favor of the M-16.