As you have phrased this (‘those peoples must… be reconciled with God’), there is no authentic blessing apart from incorporation into the people of God. So if a Christian aid organization, for example, works to alleviate suffering in Africa or a pastor volunteers to help victims of the Asian tsunami rebuild their lives, these actions do not constitute a blessing of the nations under the terms of the Abrahamic covenant? My impression is that the emerging church wants to say that the mission of God is more than evangelism - that it is a good thing in itself for the world that there is a people called to be distinct, holy, compassionate, self-giving, a dwelling place for God by his Spirit in the midst of the nations.

I am not saying that there is no authentic blessing apart from incorporation into the people of God, merely that the particular blessing referred to in the Abrahamic covenant involves this. Acts 2:25-26 says that this blessing is fulfilled when people turn from their wicked ways; Galatians 3:8 says that "justification by faith" = the gospel (evangel) = "all nations blessed"; Galatians 3:29 identifies Abraham’s heirs according to this promise as those who are "in Christ". Expressions of our Christlike love, then, while blessings from God and in fulfillment of our Christian duty, do not constitute fulfillment of the promise to Abraham.

Having said that, I agree that such things as disaster relief, development programs, education, etc. are properly part of the church’s purpose. When called upon to summarize in one word the terms of the new covenant—what Christians are obligated to do as Christians (though not to become Christians)—I answer "Christlikeness." We are to imitate Christ, and he certainly is a model of compassion and sacrificial love. But even from this perspective, the gospel writers portray Jesus’ own purpose in such terms as "to seek and to save the lost" (Luke 19:10), "to take away the sin of the world" (John 1:29), and "to call sinners to repentence" (Luke 5:32).

I think these terms in 1 Peter 2:9 speak very clearly of purpose. The expressions ‘chosen people’ (genos eklekton) and ‘God’s own people’ (laos eis peripoiêsin) come from Isaiah 43:20-21: ‘my chosen people (to genos mou to eklekton), the people whom I formed (periepoiêsamên) for myself that they might declare my praise’. To speak of Israel as a ‘kingdom of priests and a holy nation’ (cf. Ex.19:6; Isa.61:6) suggests much more than a ‘formal relationship’ with YHWH: it defines a priestly role given to the whole people amongst the nations of the world. Peter, in any case, makes the objective explicit: ‘that you may declare the wonderful deeds of him who called you out of darkness into his marvellous light’. He clearly saw some sort of continuity of purpose between the two covenants.

I read Isaiah 43:16-28 as a messianic promise; there, Israel is actually described as covenant-breakers. I do not find anything there to stipulate a definition of "declaring God’s praise," and certainly not to define this "purpose" in terms of the incorporation of the nations into Israel in the way that the church is tasked to incorporate them. Isaiah 61 I likewise see as a messianic promise. These are fulfilled in Christ and his church. Peter is applying these passages to the church, saying in effect that the church is the recipient of the messianic blessing. However, the specific covenantal obligations are not the same; Isaiah 43’s animal offerings are transformed by Peter into spiritual sacrifices (v. 5). Peter is not arguing that the church and Israel have the same purpose; rather, I see him arguing that the church, having received the blessings of the messiah, should live like Christ. How does Peter conclude this chapter? By arguing that the church’s purpose is to suffer for others, be holy, trust God, and help bring others to righteousness.

My understanding of the old covenant is that rather than suffering for others, Israel if faithful would benefit materially at their expense (Deuteronomy 28).

I find myself in complete agreement with your final paragraph.

I would describe the purpose of Israel to "be God’s people," or conversely "to have YHWH as their God." God’s plan required historical development. Beginning with Abraham, God created an initial relationship and credibility. With Israel, he made a name for himself among the surrounding nations; although Israel struggled with idolatry, by the time of Jesus this was not a problem—Jesus came to a time and place where the people knew who God was, were aware of his actions in history, and were expecting his messiah. With Jesus, God moved on to a phase in which humanity in general is to be invited into fellowship with him. So there is certainly a level of continuity from Abraham through Moses and up to the present; the same God is running things, in pursuit of the same ultimate objective, according to his original plan. None of God’s covenants could be expected to reflect a different God. However, each phase of his overall scheme is distinct from each other phase, otherwise they would not be separate phases.