After what happened in Crete Hitler was wary of using airborne troops for large scale air drops on defended positions.
There was also a feeling that the Italian Navy would abandon them and return to port if the Royal Navy mounted a serious challenge.
Then there was the island itself. It was smaller than Crete and the British garrison was more concentrated.
Also the Axis overkilled on how many troops to deploy. It was something like 25-30,000 airborne and Mountain troops plus 70,000 for the amphibious assault. This was too much for so little a target in the opinion of the Nazi hierarchy.
IMO they could have taken Malta if they really wanted to but it would have meant less troops and supplies for North Africa during the mid 1942 battles.
They may have captured Malta in July 1942 (Operation Herkules) but lost Gazala and maybe Libya before the Axis could reap the benefits of capturing the place.
Yes, by the summer of 1942 Rommel knew he was facing a two front war soon thanks to Hitler's December 1941 DoW on America and that Libya or Tunisia were no place for the Panzer Army Africa to wage such a war. Perhaps Rommel's biggest gamble in North Africa in killing Operation Herkules and going for Alexandria has long been critiqued and attacked. But, between two terrible options he had open to him at the time gambling for a quick assault in Eastern Egypt and the British 8th Army to panic and pull out to Palestine and wait for the Americans to arrive was IMO the better of the two terrible choices he had.
The Port of Alexandria in German and Italian hands and the large urban and anti-British population of Egypt joining the Panzer Army Africa were the two things that could have put the war in North Africa into overtime.