I think the important thing to remember is that His ways are not our ways. If you believe that mankind was created in God's image and yet is a "fallen" image due to sin (which is what I believe) than you have to realize that we aren't capable of "judging" in the truest sense, God's actions.
There are religions all over the place, along with atheists, agnostics steeped in pride. This is what God is against. Mankind needs to humble himself if He wants to truly see the Glory of God. This is man's stumblingblock. He wants to be his own lord.
As far as the "chosen people", I'm not sure whether or not that's the official line of reasoning. I just know that for whatever reason, God made himself known through the Jewish people and they have always been in His plan of redemption.