Is there any equipment that can do this?

I like to listen to live Jazz but my issue applies to all recorded live music. Here's the problem. With any 2 channel system, the audiance is heard as though they were on the same stage as the musicians. Ideally, the front soundstage should present the performers and the audience should be heard around and behind the listener to simulate the sense of being at a live concert. I realize that this would be all but impossible to reproduce in a 2 channel system but is it even possible with multi channel systems? If a high end quality system can present a realistic soundstage with precise imaging, why can't today's technology place the audience in its proper location to deliver a more realistic live performance? Or can it?

Sure the equipment can do this, but the recording technique is the variable.

It’s possible for a 2 channel system to reproduce the effect and/or ambiance recovery you’re describing. First the has to be present in the recorded media, either as a result of mic placement, or being processed/manipulated. Yeah: much easier, given a multi-channel rig. ie(methods): and: An example: Amused To Death used the QSound process and, on capable stereo systems, will present very precisely located images, emanating from all around the listening room(though, no clapping/audience). I’ve always appreciated David Chesky’s recordings, for placing me in the venue, even sans headphones.
What you hear with a good 2 channel is what is on the recording. If the recordist sought to have you hear the audience that way then with a really good system you will. You could run around trying all kinds of recommended performances (mine would be Mel Torme Live at Marty's, you are right there in the night club, tinkling glasses, forks and knives galore) or you could get something not merely demonstrating what you seek but actually helping you to attain it.

The XLO Test and Burn-in CD has a track demonstrating exactly what you're talking about. It's just Doug Sax talking. He just stands there talking. "I'm standing in a room that is this by that, so many feet from two microphones, blah blah blah." He's holding a wood block and hits it, "resolving the room" he says, and no kidding, you hear that thing and you hear the room! 

He then, proceeds to walk around the room, talking and hitting the block as he goes until, and this is the part you'll find interesting, he's standing right behind you. Well, technically, standing right behind the mics. But what you will hear is him standing behind you. You will hear the room all around you. Its kinda cool.

So what you do, you get that CD and you see how it sounds. If your system reproduces it as I've just described then you can be sure that is what you will hear from any jazz or other music you play on it. Trying to get anything beyond that, from any number of channels, is getting into the gimmick zone. Include me out.

The XLO CD is worth getting just for the demagnetizing tracks alone. Its worth it for the speaker setup tracks alone. Heck its even worth it for the sampler of superbly recorded music on it. Had mine a good 20 years, still use it regularly to demag. Pretty sure its still around.
The XLO CD’s still out there: One caveat: I’ve heard two pressings of the Columbia, Roger Waters, Amused To Death CD(exact same label, issue number, etc). The first contained/reproduced the info as described. The second produced none of the effects(yes- on the same system). CDs/recording quality/content can vary, from pressing to pressing, as incongruous as that may seem.
Get a processor with DTS's Neo:6 music mode. :)
J. Gordon Holt wrote about this subject a lot years ago in Stereophile (surround sound for music was a passion of his). The Hafler/Dynaco system sought to provide a cheap, easy way to simulate discrete 4-channel sound from 2-channel recordings, using the out-of-phase information buried in stereo recordings. Try to find the old Dynaquad unit if you're interested in trying it yourself.
The Carver C9 Holograph unit can do exactly what you describe) BUT you must set up your speakers properly (classic triangulated seat/speaker positions) to get it. At its best it ain’t that bad and is at least fascinating. If you can put it in a tape loop you can always just bypass it when you want to. You can get a pretty good used one (some are reconditioned) for a couple of hundred bucks or less.

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My system does this everyday with no problem.
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My system so accurately reproduces the audience I had to ask one lady with a cough to cover it with a mask or go home.