You can probably do better if you use a pair of lenses, one to focus the light from your source LED on the area where you hope for the reflection, and a second one to collect a larger solid angle of the reflectd light and focus it on your receiving photo-diode.
On the face of it, you will want at least one hundred times more signal at your receiver than you are getting at the moment, and that may be difficult, even with quite big lenses.
One useful trick is to modulate the light being emitted by you LED - something like 10kHz is a popular modulation frequency - and use a synchronous (lock-in) detector on the signal coming out of your receiver.
These days, the "synchronous detector" is often the A/D converter you get in a PIC microcontroller and similar parts. and you do the demodulation in the digital domain inside the microcontroller.
---------- Bill Sloman, Nijmegen