However, it isn't the church. Peter is writing to Jews. He is VERY specific when he addresses his letter. The difference between this and Exodus 19:5, is that Exodus 19:5 is addressed to the NATION of Israel, whereas Peter breaks it down to the elect remnant of Israel.
4 ‘You yourselves have seen what I did to the Egyptians, and how I bore you on eagles’ wings, and brought you to Myself. 5 Now then, if you will indeed obey My voice and keep My covenant, then you shall be
My own possession among all the peoples, for all the earth is Mine; 6
and you shall be to Me a kingdom of priests and a holy nation.’ These are the words that you shall speak to the sons of Israel.”
I Peter
" Peter, an apostle of Jesus Christ,
To those who
reside as aliens,
scattered throughout Pontus, Galatia, Cappadocia, Asia, and Bithynia,
who are chosen 2
according to the foreknowledge of God the Father, by the sanctifying work of the Spirit, [a]to obey Jesus Christ and be sprinkled with His blood: May grace and peace be yours in the fullest measure."
These are some of the elect Jews in the dispersion/diaspora. Peter is writing to them. There are things we can learn (a lot) from this book, but when it is speaking to the addressed, it is speaking to the Jews.
So written to these believing Jews:
"4 And coming to Him as to a living stone which has been rejected by men, but is choice and precious in the sight of God, 5 you also, as living stones, [j]are being built up as a spiritual house for a holy priesthood, to offer up spiritual sacrifices acceptable to God through Jesus Christ. 6 For this is contained in [k]Scripture:
“Behold, I lay in Zion a choice stone, a precious corner stone,
And he who believes in [l]Him will not be [m]disappointed.”
7 This precious value, then, is for you who believe; but for those who disbelieve,
“The stone which the builders rejected,
This became the very corner stone,”
8 and,
“A stone of stumbling and a rock of offense”;
for they stumble because they are disobedient to the word, and to this doom they were also appointed.
So he is saying to these Jewish believers, they, as living stones, are being built up as a spiritual house for a holy priesthood. They who believe will not be disappointed. Peter, in addressing these Jews says that this precious value (he who believes in Him will not be disappointed) is for them. But for those who do not believe (Jews here, and elsewhere), they stumble for being disobedient to the word.
"9 But you are a
chosen race, a
royal priesthood, a
holy nation, a
people for God’s own possession, so that you may proclaim the excellencies of Him who has called you out of darkness into His marvelous light; 10 for you once were not a people, but now you are the people of God; you had not received mercy, but now you have received mercy
."
Please note the church is NOT a race. Peter goes backwards. A royal priesthood, a holy nation, then to a people for God's own possession. Once they were not a people, now they are, had not received mercy, now they have. This is not addressed to the church, but to the Jews. They were once sinners (it doesn't matter that they are Jews), but God called them, as His elect, out of the darkness into His marvelous light.
Verse 11 shows who Peter is addressing.
"11 Beloved, I urge you as aliens and strangers to abstain from fleshly lusts which wage war against the soul. 12 Keep your behavior excellent
among the Gentiles, so that in the thing in which they slander you as evildoers, they may [n]because of your good deeds, as they observe them, glorify God in the day of [o]visitation."
This is to the Jews.
So to go deeper, the greek word for generation is
race, kind, nation, offspring.
From
ginomai; "kin" (abstract or concrete, literal or figurative, individual or collective) -- born, country(-man), diversity, generation, kind(-red), nation, offspring, stock.
see GREEK
ginomai
Again, the church is not a race, kind, nation, offspring.
c.
stock, race: Acts 7:19; 2 Corinthians 11:26; Philippians 3:5; Galatians 1:14;
1 Peter 2:9; (Genesis 11:6; Genesis 17:14, etc. for עַם); nation (i. e. nationality or descent from a particular people): Mark 7:26; Acts 4:36; Acts 18:2, 24.
So the elect remnant of Israel is that peculiar people of God in I Peter 2:9 which is the completely embodiment and fulfillment of Exodus. God does only have one peculiar people, and that's the remnant of Israel through the blood of Christ.
I know it is hard not to see everything in the Bible as addressed to you. It's not. There are things to learn in scripture, but you must not forget to whom it was written in order to properly interpret. Paul wrote a lot for the Gentiles. Peter wrote a lot for the JEWS. You need to remember what God called each to. Paul to the Gentiles, Peter to the Jews. The other books for the Jews are Hebrews, James, and Jude. So, out of the whole New Testament minus the gospels, the Jews got a total of five books that you want to strip away from them. Nice.
Someone pointed out that there are other places in scripture where you will see the church and the church's position, however... IT IS NOT HERE. This is written specifically to the believers of the elect remnant of Israel.