At the Tower of Babel, God punished the children of Adam for their rebellion against Him.  "And the Lord came down to see the city and the tower which the sons of the Man had built.  And the Lord said, 'Behold, they are one people, and they all have the same language.  And this is what they began to do, and now nothing which they purpose to do will be impossible for them.  Come, let Us go down and there confuse their language, that they may not understand one another's speech.'  So the Lord scattered them abroad from there over the face of the whole earth; and they stopped building the city.  Therefore its name was called Babel, because there the Lord confused the language of the whole earth; and from there the Lord scattered them abroad over the face of the earth." (Gen. 11:5-9)
Up until that point in time, all people were of one kind, simply "generic" children of Adam, the Man.  The children of Adam were united in their rebellion against their Creator.   There was great power in their unity - "Nothing which they purpose to do will be impossible for them."  So God divided them.  That division and dispersion marks the beginning of the goyim; i.e., the nations, the Gentiles, the heathen.
The Hebrew Scriptures (Tanakh) generally portray the goyim as proud, immoral, and brutal, earning for themselves the wrath of God.  (However, there are exceptions; please see THE GENTILES WHO JOINED THEMSELVES TO ISRAEL.)  From the Tower of Babel on, each and every nation - all the Gentiles - failed to be a people worshipping God in Spirit and in Truth. 
So God took one man, a Gentile - for that's all there were at the time - and promised to make a new people from him.  He told Abram, "Go forth from your country, and from your relatives and from your father's house, to the land which I will show you; and I will make a great nation, and I will bless you, and make your name great; and so you shall be a blessing; and I will bless those who bless you, and the one who curses you I will curse.  And in you all the families of the earth shall be blessed." (Gen. 12:1-3)
The new people created from Abram was to be different and set apart from the Gentiles.  "Behold, a people who dwells apart, and shall not be reckoned among the Gentiles." (Num. 23:9) God instituted the covenant of circumcision with Abram to set apart this new people.  "This is My covenant, which you shall keep, between Me and you and your seed after you: every male among you shall be circumcised.  And you shall be circumcised in the flesh of your foreskin; and it shall be the sign of the covenant between Me and you." (Gen. 17:10-11)
God's purpose was to keep Israel holy, to have a people to worship Him, and Him alone, in Spirit and in Truth.  "When you enter the land which the Lord your God gives you, you shall not learn to do according to the detestable things of those Gentiles.  There shall not be found among you anyone who makes his son or his daughter pass through the fire, one who uses divination, one who practices witchcraft, or one who interprets omens, or a sorcerer, or one who casts a spell, or a medium, or a spiritist, or one who calls up the dead.
"For whoever does these things is detestable to the Lord; and because of these detestable things the Lord your God will drive them out before you.  You shall be blameless before the Lord your God.  For those Gentiles which you shall dispossess listen to those who practice witchcraft and to diviners, but as for you, the Lord your God has not allowed you to do so." (Dt. 18:9-14)
In each book of the Law of Moses, God taught the Israelites to be separate from the Gentiles, and not to live like them.  Upon redeeming them out of Egypt, He commanded, "You shall not do what is done in the land of Egypt where you lived, nor are you to do what is done in the land of Canaan where I am bringing you; you shall not walk in their statutes." (Lev.18:3)  "You shall not worship their gods, nor serve them, nor do according to their deeds." (Ex. 23:24)
Before the children of Israel entered the land of Israel, the Lord again warned them against the idolatry of the Gentiles.  "You shall make no covenant with them and show no favor to them.  Furthermore, you shall not intermarry with them; you shall not give your daughters to their sons, nor shall you take their daughters for your sons.  For they will turn your sons away from following Me to serve other gods; then the anger of the Lord will be kindled against you, and He will quickly destroy you. . . .  For you are a holy people to the Lord your God; the Lord your God has chosen you to be a people for His own possession out of all the peoples who are on the face of the earth." (Dt. 7:2-4, 6)
The Lord had called Israel to be holy, which necessitated physical separation from the Gentiles.  He promised terrible judgments if the Jewish people allowed the Gentiles to remain in their midst and if they committed the abominations of the Gentiles.  The ultimate judgment would be exile among the Gentiles.  If the Jewish people would not be separate, if they would not be different, then God would banish them to live among the Gentiles.  (Please see ISRAEL'S SIN AND GOD'S FAITHFULNESS.)
DIAGRAM 1 portrays the people of Israel, which is differentiated from the goyim by the covenant of physical circumcision.      

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In the Beginning
The Goyim Were First
Hopeless Gentiles
The Origins of Israel's Separation
The Gentiles who joined themselves to Israel
A People Set Apart
Jews and Hebrews
You Shall Be Cut Off
The Faithful Remnant of Israel