In reality, it was due to the fact that the Ambassador model was gigantic, and therefore not as easy to film as the Excelsior and Miranda models. (Note: The above poster was incorrect in stating that there were multiple Excelsior models. Every time you see an Excelsior class, refitted or otherwise, its the Excelsior built for Star Trek III, according to the documentaries on the TNG DVD sets. The same goes for the Miranda. It's always the Reliant with a fresh coat of paint.) We see them a lot in DS9 because the Dominion War battles were almost completely done with CGI.
In continuity, the Ambassador Class was never said to be retired. I agree with what was previously said, that there were few of them to begin with, as the Excelsior was being mass-produced and the Galaxy Project was underway virtually when the Enterprise C was lost. I think there was a line in "Yesterday's Enterprise" that due to the way the 1701-C was so outgunned, the Ambassador was deemed to be insufficient as a platform for missions which included danger. Also, the C was barely 5 years old when it was destroyed, and typically the Enterprise was always one of the initial models to roll out of the shipyard for its given class. And 15-20 years after production, the Galaxy class was launched, which indicates that the Ambassador was cancelled in favor of the increasingly promising Galaxy.
Also note that there was sort of a lull in hostile activity between 2295 and the launch of the Enterprise D. The Klingons were allies, and the Romulans withdrew from contact with the Federation after Narendra III. The Cardassian War occurred, but it has been established that a Galor-Class is no match for an Excelsior Class, much less an Ambassador. Most countries today will ususally slow production of armaments in order to save money or resources. That's why the US Air Force continued to use the F-16 as its primary aircraft for nearly two decades.
As well, just because we don't see Ambassador Class ships, does not necessarily mean they are not there. According to various episodes, Starfleet has over 800 active starships in space at a given time. We never saw nearly that many in all of the series combined. In short, its a big galaxy, and even large ships are comparatively small.
