Q. How do you answer someone who believes Israel has been replaced by the Church and uses 1 Pet. 2:9 to support his position?
A. 1 Peter 2:9 says, “But you are a chosen people, a royal priesthood, a holy nation, a people belonging to God, that you may declare the praises of him who called you out of darkness into his wonderful light.”
Notice this verse doesn’t disqualify Israel from anything. It doesn’t say the Church has become the chosen people, as if we’ve been chosen in place of Israel, just that we’re a chosen people.
In addition, one of the problems of trying to build doctrine on one or two verses is that if you get it wrong you have to either ignore or re-interpret lots of other ones to maintain your position. This is true of replacement theology, no matter which verses you try to hang your hat on. Through out the Old and New testaments prophecies of the reappearance of Israel in the End Times are so numerous as to be undeniable.
For example, in Luke 21:24 Jesus said Jerusalem would be trampled on by the Gentiles until the time of the Gentiles is fulfilled. The word “until” means there will be an end to Gentile dominion but Jerusalem will remain. Romans 11:25-29 is another clear example showing that after the church is taken Israel will be saved. There are dozens of others in Deuteronomy, the Psalms, Isaiah, Jeremiah, Ezekiel, Daniel, Micah, Zechariah, etc. In summary it’s impossible to hold to a literal interpretation of the Bible and also subscribe to replacement theology.
http://gracethrufaith.com/ask-a-bible-teacher/1-peter-29-and-replacement-theology/#more-35780