Recall that (1) the Old Covenant was a covenant of marriage, (2) Israel was divided in twain, and (3) the Northern Kingdom was divorced; this is the origin of the "nations" or "gentiles" (from the Latin GENTILIS, which is the exact equivalent of the Greek ETHNOS). The Southern Kingdom remained in the marriage relationship; these are the "Jews".
The prophets foretold the reunion of the SK and the NK, with both being brought into the marriage relationship of the New Covenant. The restoration of Israel is fulfilled in the Church, which is composed exclusively of the literal, physical descendants of Israel.
But in the eyes of God, not all Israelites of the flesh are part of Israel; unbelievers are excluded. Accordingly, the Church is termed the "Israel of God".