John Gill Commentary Deuteronomy 7:6

"For thou art a holy people unto Jehovah thy God: Jehovah thy God hath chosen thee to be a people for his own possession, above all peoples that are upon the face of the earth." — Deuteronomy 7:6 (ASV)

For you are an holy people unto the Lord your God
Not sanctified in a spiritual sense, or having principles of grace and holiness in them, from where holy actions sprang, at least not all of them; but they were separated from all other people in the world to the pure worship and service of God in an external manner, and therefore were to avoid all idolatry, and every appearance of it:

the Lord your God has chosen you to be a special people unto himself
above all people that are upon the face of the earth ;
for special service and worship, and to enjoy special privileges and benefits, civil and religious; though they were not chosen to special grace here, and eternal glory hereafter; at least not all of them, only a remnant, according to the election of grace; yet they were typical of the chosen people of God in a special sense; who are chosen out of the world to be a peculiar people, to be holy here and happy hereafter; to enjoy communion with God in this life and that to come, as well as to serve and glorify him now and for evermore.