Let's remember that there was an Israel before the Old Covenant. Israel was the name given to Jacob. The word first appears in Scripture as the conclusion to the story of Jacob’s wrestling match (Gen 32.21-30). So, in the history of salvation, all those who stem from the Patriarch Jacob are, in a broad sense, “Israel.” Two chapters later in Genesis the term “Israel” is used to describe the place and name of the children of Abraham, Isaac and Jacob (Gen. 34:7). At Paddan Aram, God again blessed him and named Jacob, “Israel” (Gen. 35:9-10) and repeated the Abrahamic promise to be a God to Abraham and to his children.
Having said this, it might seem to support the idea that, Israel means, “those physically descended from Jacob.”
But we must recall that that Jacob is not the beginning of the story. Before there was an Israel there was Abraham and his miracle son, Isaac (Romans 9). Before Abraham, Jesus says, “I AM” (John 8.58).
God promised to Abraham, “I will be your God, and you will be my people.” Our Lord taught the Jews in John 8, that it was He who made the promise to Abraham (John 8:56). The first fulfillment of that promise did not come by “the will of man” but by the sovereign power of God when God allowed Sarah to conceive in her old age.
In the Exodus from Egypt, God constituted the children of Jacob collectively as His “son" (Ex. 4:23). This is a deliberate description of a national people. Clearly, the sons of Jacob are not God’s Son by nature, but, as it were, by adoption. In Deuteronomy 7:7, Moses denies that there was any quality inherent in Israel which made the sons of Jacob worthy of being called the people of God. Rather there are two reasons for God’s choosing of Israel: His undeserved love and His Covenant promise to Abraham.
Israel was not, however, God’s natural Son. That much was evident in the wilderness, in Canaan and finally in the ejection when God changed the name of his “son” Israel to “Lo Ammi, not my people” (Hos. 1:9-10).
God disinherited His adopted, temporary, national “son” Israel as a national people precisely because God never intended to have a permanent earthly, national people. After the captivity, the nation of Israel had largely fulfilled their role in the history of redemption. As a sign of this fact, the Glory-Spirit departed from the Temple. This is because the nation of Israel's chief function was to serve as a type and shadow of God’s natural Son, Jesus the Messiah (Heb. 10:1-4).
Covenantalists argue that Our Lord Jesus Christ is the true Israel of God. That everyone who is united to Him by grace alone, through faith alone becomes, by virtue of that union, the true Israel of God. It is wrong-headed to look for, expect, hope for or desire a reconstitution of national Israel in the future. The New Covenant church is not something which God instituted until He could recreate a national people in Palestine, but rather, God only had a national people temporarily (from Moses to Christ) as a prelude to and foreshadowing of the creation of the New Covenant in which the ethnic distinctions which existed under Moses were fulfilled and abolished (Ephesians 2:11-22; Col. 2:8-3,11).
Matthew’s inspired interpretation in Matthew 2:15 of the Hebrew Scriptures (Hosea 11:1) must norm our interpretation of Scripture. Per Matthew’s interpretation, it is Our Lord Jesus Christ, not the temporary, national, people who is the true Israel of God. It is not a stretch to say that the only reason God orchestrated the first Exodus was so that He might orchestrate the second Exodus so we might know that Jesus Christ is the true Son of God and that all Christians are God’s Israel regardless of ethnicity.
It is because Jesus Christ is the true Israel of God that, in His infancy and indeed in His entire life, He recapitulated the history of national Israel. What rebellious national Israel would not do, Our Lord did: He loved God with all his heart, soul, mind and strength and His neighbor as himself (Matt 22:37-40). Similarly, Paul argues very clearly that the promises to Abraham were fulfilled in Christ (Gal. 3:16).
It was the New Testmament gospel promises that were given to Abraham. These promises were given before Moses and they were fulfilled in Jesus Christ. Our Lord is Abraham’s true Son, He is “the seed” promised to Abraham. It was to teach national Israel and us the greatness of our sin and misery that the Law was given to Moses (Gal. 3:22). The gospel promise to Abraham was not fundamentally changed by the administration of the Law through Moses.