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Read Introduction to 1 Peter


“Who once were not a people but are now the people of God, who had not obtained mercy but now have obtained mercy.”
The dividing line for this verse is the cross. This verse describes the Christian before he entered the plan of God and after he entered the plan of God. 
who had not obtained mercy but now have obtained mercy
There was a point when we had not received mercy from God. The tense of “had not obtained mercy” indicates that we existed in the sad state of no mercy for a long time.
Mercy is not grace. Grace emphasizes God’s provision for us in salvation. Mercy highlights the consequences of what God does with our sins. He spares punishment. He forbears punishment in the light of his grace. God met his justice in Christ, so he is free to exercise his mercy toward us. “Mercy” means to receive grace. Before we became a Christian, grace did not come in our direction. 
What is God’s attitude toward the non-Christian? Since he is spiritually dead, God must deal with him on the basis of justice. The unbeliever has not received the provision for God’s justice in the cross; therefore, he must take the punishment for sin himself. God is not free to exercise his mercy on one who does not accept the provision for mercy. 
God cannot tolerate any sin whatsoever. God’s character must remain the same, whether a person is a Christian or not. If he violates God’s solution of the cross for sin, he must pay for sin himself. God must be consistent with himself, or else he would not be God. Since the Christian has accepted God’s punishment of the sin question upon Christ, God is free to extend his mercy to us. God must always act consistently with himself. 
Ephesians 2:4-5, “But God, who is rich in mercy, because of His great love with which He loved us, 5even when we were dead in trespasses, made us alive together with Christ (by grace you have been saved).”
Titus 3:5,  “Not by works of righteousness which we have done, but according to His mercy He saved us, through the washing of regeneration and renewing of the Holy Spirit.”
1 Timothy 1:15-16, “This is a faithful saying and worthy of all acceptance, that Christ Jesus came into the world to save sinners, of whom I am chief. 16However, for this reason I obtained mercy, that in me first Jesus Christ might show all longsuffering, as a pattern to those who are going to believe on Him for everlasting life.” 
God is free to exercise mercy to us because of the cross.
Do you know that God wants to extend mercy to you? He is free to do it because Christ has suffered all of the suffering that needs to be suffered for our sins. He paid for it all personally on the cross. God is now free to exercise his mercy to you if you will receive it.
You may not feel that you deserve mercy. That is not the issue with God. We can understand the mercy of God, but we cannot give mercy to ourselves. If this is the case, then we violate God by injecting our own thinking about forgiveness into God’s plan for salvation. God’s plan for salvation is that he will extend his mercy to any who accept God’s judgment of sin upon Christ as he died on the cross. 
This is also the case with the Christian. Many Christians cannot forgive themselves for what they have done. God has forgiven them and does not hold it against them anymore. God is faithful to give mercy:
Lamentations 3:22-23, “Through the Lord’s mercies we are not consumed,
Because His compassions fail not.
23 They are new every morning;
Great is Your faithfulness.”