What is the context?
This verse follows the picture of believers as living stones built together around Christ. The description is addressed to the people who believe: their calling is to belong to God, serve Him and proclaim His virtues.
The titles recall Exodus 19:4–6, where God calls the people He delivered His treasured possession, a kingdom of priests and a holy nation. Verse 10 immediately adds the mercy through which they have become His people.
How is this passage commonly understood?
Calvin and Wesley apply this priesthood to the believing people, whose lives and words are to declare God’s goodness. It gives the whole community a calling before Him.
The Catholic Catechism, 1546–1547, affirms this common priesthood while also teaching a distinct ordained priesthood serving it in Christ. Reformed churches also assign particular responsibilities to ministers, as in Westminster Confession, 27.4, on baptism and the Lord’s Supper. These differences concern the form of ministry within the people, rather than whether the people have any priestly calling.
Where does this fit in God's plan?
Isaiah 43:20–21 connects the people God forms for Himself with declaring His praise. Peter carries that purpose into the life of believers who have been called from darkness into light.
The next verse’s reference to mercy belongs with Hosea 2:23, also used in Romans 9:24–26 for God’s calling from Jews and Gentiles. Their privilege is a reason for grateful witness rooted in received mercy.
What is our position?
Our study Returning to the Word identifies the church as the people in whom God’s Spirit dwells and the priesthood as a calling shared by every believer. Who Shepherds the Church? connects that shared life with direct access to God through Christ, without a necessary human mediating class between Him and His people.