1st: God and Sacrifice
God's opinion about human sacrifice.
A quick google search for references about Human sacrifice show this.
Deuteronomy 18:10, 2 Kings 21:6
Also sacrifice in general is 2nd to the heart condition to the sacrificer. (Hosea 6:6, 1 Samuel 15:22)
I am a calvinist. Since that is the case i believe in God's sovereign power over all principalities and powers. So the reason for Israel's defeat was in His providence. He also only gave the Moabites into the hands of the kings during the battle, i do not believe it specified city destruction.
3rd: The Ark
In I Samuel it describes a story where the Ark of the LORD is brought into the camp of Israel. The Israelites shout with confidence! But the Philistines hear this and it actually encourages them to such a degree that they go and conquer Israel. But the reasoning for the defeat was the 'Lucky rabbit's foot' instead of holy fear and honor of God, His law, and His Ark.
--- The reasoning ---
God did not honor the kings (read a few verses before) and they went to battle further than God's hand of providence allowed. I believe He, God, used the sacrifice to encourage the enemy troops to drive Israel from the city they were attempting to capture. I believe God just used it as a turning point (its an emotional experience. Try to imagine seeing your king sacrifice his son, the one to take the place of him. This would be fuel for the fire. Even if it was demonic powered, it is still within God's providence).
Obviously i am just a laymen, so my answer is to evidently needs to be taken with a grain of salt. Please feel free to critique.
Sorry if this was a runon. I did this in a work meeting :)