Jews and Christians insist that God made a covenant with Jews [Isaac and his descendants in particular] and thus Muslims cannot be the “chosen” people of God. But does that exclude God’s covenant with the other children of Abraham?
The covenant was made with the seed of Abraham which of course also included the Children of Israel. And this covenant was made on the basis that if the seed of Abraham kept their part of the bargain by being obedient to God then God too would keep his covenant with them. In Quran, God reminds them of this fact. Quran also says that God made a covenant with Christians, “[5.14] And with those who say, We are Christians, We made a covenant, but they neglected a portion of what they were reminded of, therefore We excited among them enmity and hatred to the day of resurrection; and Allah will inform them of what they did.” Therefore, one can argue that God’s covenant is not based on ethnicity or family ties but is a trust that God puts in the hands of those whose only aim is to spread God’s religion on Earth, not establish a tribal territory.
Those who insist on the literal reading of the Bible, I suggest that they consider the following:
In Genesis 17, with the Covenant of Circumcision, God tells Abraham that Sarah will have a son. Abraham was very surprised and ‘laughed to himself.’ He must have told Sarah what the Lord told him; after all, you need a woman to have a child with. But then in Genesis 18, we find the story of the Three Visitors: ‘Then the LORD said, ‘I will surely return to you about this time next year, and Sarah your wife will have a son.’ Sarah reacts as if she is hearing this prediction for the first time.
Both these stories cannot be true at the same time. If God had already told Abraham at the Covenant of Circumcision that he would have Issac, what was the point in sending three angels to make the same prediction again?
Most likely, Issac was not the son in Covenant of Circumcision, but after the Babylonian Captivity when Torah was rewritten from memory, Jewish scribes added few verses (Genesis 17:15-22) to shift focus on Isaac and make him the protagonist. If you skip these verses and jump from Genesis 17:14 to Genesis 17:23, there is perfect continuity in the text, otherwise there isn’t.