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Why did God create Israel?

God wanted to create a nation that revealed Him to the other nations. Deuteronomy 4, spoken by Moses before the nation enters the borders of the new Promised Land, says this:

Observe them carefully, for this will show your wisdom and understanding to the nations, who will hear about all these decrees and say, “Surely this great nation is a wise and understanding people.” What other nation is so great as to have their gods near them the way the LORD our God is near us whenever we pray to him? And what other nation is so great as to have such righteous decrees and laws as this body of laws I am setting before you today. Deuteronomy 4:6-8

Through Israel, God wanted to show other nations his wisdom and understanding.

God wanted to show other nations his closeness and care for others.

God wanted to show other nation his greatness.

For the LORD your God is a merciful God; he will not abandon or destroy you or forget the covenant with your ancestors, which he confirmed to them by oath. Deuteronomy 4:31

God wanted to show the other nations his mercy.

God wanted to show the other nations he’s a promise keeper.

Has any god ever tried to take for himself one nation out of another nation, by testings, by signs and wonders, by war, by a mighty hand and an outstretched arm, or by great and awesome deeds, like all the things the LORD your God did for you in Egypt before your very eyes? Deuteronomy 4:34

God wanted to show other nations how he rescues his people.

God wanted to show other nations his power and awesome deeds.

Because he loved your ancestors and chose their descendants after them, he brought you out of Egypt by his Presence and his great strength, to drive out before you nations greater and stronger than you and to bring you into their land to give it to you for your inheritance, as it is today. Deuteronomy 4:37-38

God wanted to show his love.

God wanted to show his strength when it seems we are outnumbered.

God used Israel to reveal his character and love.

He did all of that through one nation.  Now, God chooses to show that same love and care to all nations.