user1811: I have found the following disadvantages of the fianchetto bishop:
1) The diagonal it controls is often blocked by the knight in its natural square.
2) The diagonal it controls is often blocked by central pawns of the same team or of the opponents.
3) Advancing the knight pawn (b2 -b3 or g2 - g3) somewhat weakens the pawn structure.
4) If the other bishop is developed along its normal diagonal, for eg.to b5,then advancing the knight pawn - b2-b3 cuts off the escape route for the other bishop - after for eg. 4) B-b5 a6 5) B-a4 b5 and 6) B-b3 is not possible because of the pawn at b3 and the bishop is trapped. So it somewhat impedes the development of the other bishop.
5) The fianchetto bishop cannot be defended by a pawn and is vulnerable to attack from the sides. Also the 'hole' in the pawn structure can make the rook vulnerable if the fianchetto bishop is moved from its b2 or g2 spot.
For these reasons, I've personally never preferred the fianchetto.
Yet, despite these drawbacks, the fianchetto development is often used in certain openings such as the Sicilian dragon and variations of QGD. Some players even open the game with the fianchetto. 
So, overall, is fianchetto development a good idea and under which conditions is it justified? What are the points to keep in mind during fianchetto development?

user70: Such bishops attack the center and the opponent's knight pawn and rook.  If the financhetto is on the wing opposite the opponent's castled king, it's a dagger.  Any queen move onto that diagonal is can be a double attack.  So a perfectly good plan would be to clear the diagonal, planning to pick up undefended material with the queen, after all the exchanges happen.
Until the diagonal is clear, it supports pawns and knights occupying the center, or puts pressure on the opponent's pieces that are there.
What's not to like!

user17: All of your alleged disadvantages are offset by compensating advantages:
1) "The diagonal it controls is often blocked by the knight in its natural square." Yes, but when the knight moves it can "discover" an attack by the bishop, while making its own (second) attack.
2) "The diagonal it controls is often blocked by central pawns of the same team or of the opponents." Yes, but the bishop can be a power weapon in attacking the opponent's pawns (in conjunction with your pawns and pieces), or defending your own.
3) "Advancing the knight pawn (b2 -b3 or g2 - g3) somewhat weakens the pawn structure." Yes, but the bishop actually strengthens the whole structure. This is particularly true if the opponent's bishop of the same color has been exchanged for say, a knight.
4) "If the other bishop is developed along its normal diagonal, for eg.to b5,then advancing the knight pawn - b2-b3 cuts off the escape route for the other bishop - after for eg. 4) B-b5 a6 5) B-a4 b5 and 6) B-b3 is not possible because of the pawn at b3 and the bishop is trapped. So it somewhat impedes the development of the other bishop." Developing the light squared bishop might require pawns on d4 and e3, blocking the dark squared bishop, which might then be best placed at b2 (or a3).
5) "The fianchetto bishop cannot be defended by a pawn and is vulnerable to attack from the sides. Also the 'hole' in the pawn structure can make the rook vulnerable if the fianchetto bishop is moved from its b2 or g2 spot." A fianchettoed bishop is protected by a king. A bishop in the "open" can be trapped by opposing pawns in e.g. a "Noah's Ark" trap.
A fianchettoed bishop is not necessarily in a worse (or better) position than the same bishop in another position. It all depends on what type of game you're playing, against what type of opponent, and what you're trying to accomplish (win, or merely draw).

user1824: 
1) The diagonal it controls is often blocked by the knight in its
  natural square.

It's not too bad, the knight is a dynamic piece and sooner or later it will be moved.

2) The diagonal it controls is often blocked by central pawns of the
  same team or of the opponents.

Maybe the main strategy in the opening and middle game after fianchetto is try to not block the diagonal by self pawn and opening the center. A common method is let the opponent make his center by pawns and after that you attack to the center by f or c pawns, in this situation the fianchettoed bishop is useful.

3) Advancing the knight pawn (b2 -b3 or g2 - g3) somewhat weakens the
  pawn structure.

Yes. “Pawns cannot move backwards” you made your decision to fianchetto and you should pay something. After advancing b or g pawns, neighbor squares in third row are like holes. Try to keep the fianchetto bishop to stop opponent put his pieces in the holes.

4) If the other bishop is developed along its normal diagonal, for
  e.g. to b5, then advancing the knight pawn - b2-b3 cuts off the escape
  route for the other bishop ...

Yes again. After fianchetto a bishop, another bishop can not used to pin the same side knight. Because after attacking to the bishop by pawns a or h, the bishop should give a tempo and comes back or exchanges by opponent knight which is not desired sometimes.

5) The fianchettoed bishop cannot be defended by a pawn and is
  vulnerable to attack from the sides...

The main defender is the king. Not to worry about that since you have options to defend your position. Anyway it's chess and everything depends on the exact calculation not broad pieces of advice.

user291: All the things you say are true! But fianchettoed bishops have some advantages as well. Here are a few:

They control multiple central squares at once. A fianchettoed bishop attacks half of the center four squares (e.g., a bishop on g2 attacks e4 and d5). Bishops not on the long diagonals can't do this.
They also can attack multiple squares around the opponent's king at once. A Dragon bishop on g7 facing a queenside-castled king on b1 casts its eye on c3, b2, and a1.
They can attack and defend simultaneously. A bishop on g2 has a lot of influence over the center squares of e4 and d5, not to mention that it can also eye a black pawn at b7 or the rook behind it at a8. But it also protects a castled king, covering f3 and h3.
It's not easy to attack them. A bishop at b5, say, is often forced back to b3 with ...a6 ...b5. And Black often even attacks it again from there, say by ...Na5. On the other hand, a fianchettoed bishop on g2 is nicely tucked out of play. Usually the only thing you have to worry about much is an opposing bishop coming to h3 supported by a queen.

Deciding where to put your bishops involves a lot of tradeoffs, which include the positive aspects mentioned here as well as the negative ones in your question.

1811: <p>I have found the following disadvantages of the fianchetto bishop:</p>

<p>1) The diagonal it controls is often blocked by the knight in its natural square.</p>

<p>2) The diagonal it controls is often blocked by central pawns of the same team or of the opponents.</p>

<p>3) Advancing the knight pawn (b2 -b3 or g2 - g3) somewhat weakens the pawn structure.</p>

<p>4) If the other bishop is developed along its normal diagonal, for eg.to b5,then advancing the knight pawn - b2-b3 cuts off the escape route for the other bishop - after for eg. 4) B-b5 a6 5) B-a4 b5 and 6) B-b3 is not possible because of the pawn at b3 and the bishop is trapped. So it somewhat impedes the development of the other bishop.</p>

<p>5) The fianchetto bishop cannot be defended by a pawn and is vulnerable to attack from the sides. Also the 'hole' in the pawn structure can make the rook vulnerable if the fianchetto bishop is moved from its b2 or g2 spot.</p>

<p>For these reasons, I've personally never preferred the fianchetto.</p>

<p>Yet, despite these drawbacks, the fianchetto development is often used in certain openings such as the Sicilian dragon and variations of QGD. Some players even open the game with the fianchetto. </p>

<p>So, overall, is fianchetto development a good idea and under which conditions is it justified? What are the points to keep in mind during fianchetto development?</p>
 70: <p>Such bishops attack the center and the opponent's knight pawn and rook.  If the financhetto is on the wing opposite the opponent's castled king, it's a dagger.  Any queen move onto that diagonal is can be a double attack.  So a perfectly good plan would be to clear the diagonal, planning to pick up undefended material with the queen, after all the exchanges happen.</p>

<p>Until the diagonal is clear, it supports pawns and knights occupying the center, or puts pressure on the opponent's pieces that are there.</p>

<p>What's not to like!</p>
 17: <p>All of your alleged disadvantages are offset by compensating advantages:</p>

<p>1) "The diagonal it controls is often blocked by the knight in its natural square." Yes, but when the knight moves it can "discover" an attack by the bishop, while making its own (second) attack.</p>

<p>2) "The diagonal it controls is often blocked by central pawns of the same team or of the opponents." Yes, but the bishop can be a power weapon in attacking the opponent's pawns (in conjunction with your pawns and pieces), or defending your own.</p>

<p>3) "Advancing the knight pawn (b2 -b3 or g2 - g3) somewhat weakens the pawn structure." Yes, but the bishop actually strengthens the whole structure. This is particularly true if the opponent's bishop of the same color has been exchanged for say, a knight.</p>

<p>4) "If the other bishop is developed along its normal diagonal, for eg.to b5,then advancing the knight pawn - b2-b3 cuts off the escape route for the other bishop - after for eg. 4) B-b5 a6 5) B-a4 b5 and 6) B-b3 is not possible because of the pawn at b3 and the bishop is trapped. So it somewhat impedes the development of the other bishop." Developing the light squared bishop might require pawns on d4 and e3, blocking the dark squared bishop, which might then be best placed at b2 (or a3).</p>

<p>5) "The fianchetto bishop cannot be defended by a pawn and is vulnerable to attack from the sides. Also the 'hole' in the pawn structure can make the rook vulnerable if the fianchetto bishop is moved from its b2 or g2 spot." A fianchettoed bishop is protected by a king. A bishop in the "open" can be trapped by opposing pawns in e.g. a "Noah's Ark" trap.</p>

<p>A fianchettoed bishop is not necessarily in a worse (or better) position than the same bishop in another position. It all depends on what type of game you're playing, against what type of opponent, and what you're trying to accomplish (win, or merely draw).</p>
 1824: <blockquote>
  <p>1) The diagonal it controls is often blocked by the knight in its
  natural square.</p>
</blockquote>

<p>It's not too bad, the knight is a dynamic piece and sooner or later it will be moved.</p>

<blockquote>
  <p>2) The diagonal it controls is often blocked by central pawns of the
  same team or of the opponents.</p>
</blockquote>

<p>Maybe the main strategy in the opening and middle game after fianchetto is try to not block the diagonal by self pawn and opening the center. A common method is let the opponent make his center by pawns and after that you attack to the center by f or c pawns, in this situation the fianchettoed bishop is useful.</p>

<blockquote>
  <p>3) Advancing the knight pawn (b2 -b3 or g2 - g3) somewhat weakens the
  pawn structure.</p>
</blockquote>

<p>Yes. <em>“Pawns cannot move backwards”</em> you made your decision to fianchetto and you should pay something. After advancing b or g pawns, neighbor squares in third row are like holes. Try to keep the fianchetto bishop to stop opponent put his pieces in the holes.</p>

<blockquote>
  <p>4) If the other bishop is developed along its normal diagonal, for
  e.g. to b5, then advancing the knight pawn - b2-b3 cuts off the escape
  route for the other bishop ...</p>
</blockquote>

<p>Yes again. After fianchetto a bishop, another bishop can not used to pin the same side knight. Because after attacking to the bishop by pawns a or h, the bishop should give a tempo and comes back or exchanges by opponent knight which is not desired sometimes.</p>

<blockquote>
  <p>5) The fianchettoed bishop cannot be defended by a pawn and is
  vulnerable to attack from the sides...</p>
</blockquote>

<p>The main defender is the king. Not to worry about that since you have options to defend your position. Anyway it's chess and everything depends on the exact calculation not broad pieces of advice.</p>
 291: <p>All the things you say are true! But fianchettoed bishops have some advantages as well. Here are a few:</p>

<ol>
<li><p>They control multiple central squares at once. A fianchettoed bishop attacks half of the center four squares (e.g., a bishop on g2 attacks e4 and d5). Bishops not on the long diagonals can't do this.</p></li>
<li><p>They also can attack multiple squares around the opponent's king at once. A Dragon bishop on g7 facing a queenside-castled king on b1 casts its eye on c3, b2, and a1.</p></li>
<li><p>They can attack and defend simultaneously. A bishop on g2 has a lot of influence over the center squares of e4 and d5, not to mention that it can also eye a black pawn at b7 or the rook behind it at a8. But it also protects a castled king, covering f3 and h3.</p></li>
<li><p>It's not easy to attack them. A bishop at b5, say, is often forced back to b3 with ...a6 ...b5. And Black often even attacks it again from there, say by ...Na5. On the other hand, a fianchettoed bishop on g2 is nicely tucked out of play. Usually the only thing you have to worry about much is an opposing bishop coming to h3 supported by a queen.</p></li>
</ol>

<p>Deciding where to put your bishops involves a lot of tradeoffs, which include the positive aspects mentioned here as well as the negative ones in your question.</p>
