Newsweek story on why 'Arabs' are the go to enemy of choice with the author wondering why no-one has produced a game in reverse. Someone already tried it, a modder a few years back release a Counter Strike (?) mod that allowed players the ability to play the game as 'Terrorists'. He got into a lot of hot water with the press and 'critics' over that, ironically much the same press now impugning developers as 'racists' or 'Islamophobes' for not
supporting/encouraging pro 'Islamic' or 'Arab' diversity "narratives" now that it's politically expediant to do so, the essential thrust of the Newsweek article.
Developers have also attempted to 'reverse' games[3] but they haven't gone down too well[1] either, at least when not tied to well established franchises - CoD:Ghosts for example[2]. Projects developed by smaller studios don't get such favourable press and media coverage however, often being vilified as 'enablers' or 'supporters'[3] of terrorism by press and media. And even framed as a joke, this doesn't specifically negate developers being dragged over the coals, inculcated for "material support of terrorism", which doesn't just mean supplying arms, rather it can, and does, include anything that might aid or prop up the underlying message or ideologies involved.
And this is where computer/video games get into really dodgy territory when it comes to their 'stories' because as it stands, propaganda, material that could be deemed supportive of a particular 'negative' outlook (i.e. the 'enemies' perspective), can capture developers under the auspices of various Anti-Terrorism Laws. And that certainly isn't a 'game'.
So asking "
why don't game developers produce 'terrorist' games". The answer is generally going to be "
it's just not worth the hassle", especially given how contrary and flighty press and media seem to be.
Footnotes
[1] Interesting factoid; in researching this post and trying to find the developer(s) in question who cancelled the game/s showing 'terrorists' protagonists, the following search term "developer cancels terrorist game" was initially used. This returned a disproportionate number of results referencing Anita Sarkesian's Utah State University talk cancellation. Further to this, Google-suggested search terms also included "anita sarkeesian UN" (reference to a United Nations sanctioned 'women's' event appearance), "feminist frequency" and "gamergate". Using "studio cancels terrorist game" showed results mostly referencing X-Com and other real-world events associated with "terrorists" and "games" (football/soccer etc.). Why the those two words, "developer" versus "studio", produce such drastically different results is open to question, especially considering Ms. Sarkeesian is not a game developer/studio/publisher, or has anything to do with production therein. Other terms that generate similar results include; "game developer cancels game based on terrorism" ("zoë quinn", "what is gamergate", "depression quest", "brianna wu", "#gamergate", "gamergate explained", "sarkeesian", "feminist frequency"); "video game cancels terrorism game" ("zoe quinn", "brianna wu", "feminist frequency", "anita sarkeesian colbert", "anita sarkeesian twitter", "anita sarkeesian un", "anita sarkeesian gamergate", "anita sarkeesian meme"), etc., etc.. This also highlights a problem with that particular issue (gamergate and online harassment) in terms of finding solutions when the well has been so thoroughly poisoned by individuals on all sides acting in bad,self-serving, faith, such that no-one wants anything to do with it lest they be impugned as a harasser by those harassing.
[2] List of controversial video games (Wikipedia).
[3] "Terrorists, video games and us", "The video game that allows you to play as an ISIS fighter slaughtering Westerners: Islamists give away combat simulator in a bid to recruit children and young men", "Al Qaeda's Goofy Video Game Provokes Laughter, Not Terror" etc., etc.
