Continued from yesterday...
... Nor is it likely that Paul viewed himself as a moral failure before he "discovered" justification by faith. This was also one version of the older story. Paul, plagued by his moral failures as revealed in Romans 7, finally realizes that he must depend entirely on Christ for his righteousness. Now that he believes, he still cannot do the good he wants to do (7:19), but God now looks at Christ's righteousness rather than his. Paul is both sinner and righteous, as long as he keeps repenting.
Again, this scenario is a fair description of Martin Luther's pilgrimage, but it is not Paul's.  In Philippians 3:6, Paul says that before he believed on Christ, he was faultless, "as for righteousness based on the law." Indeed, Paul regularly tells his churches confidently to imitate his way of living (e.g., 1 Cor. 4:16-17; Phil. 4:9), and the word repentance rarely leaps from his subconscious in his writings--in fact never in relation to himself. Paul was not a bad Pharisee. He simply had an encounter with Christ that led him in another direction!
The vast majority of experts on Romans now agree that Paul never meant Romans 7 to depict a never-ending struggle for believers to do the right thing. Indeed, we are reading this chapter exactly the opposite of how Paul meant it if we do not read it in the flow of Romans 6-8. In these chapters, Paul contrasts what it is like to be a slave to sin with what it is like to have the Spirit within. The end of the argument is Romans 8, where he talks about the Spirit setting a person free from the law of sin and death (8:2).
On the way there, Paul vividly dramatizes in Romans 7 the plight of the person, especially the Jew, who does not have the Spirit but wants to keep the essence of the Law, such as the command not to covet. At the dramatic climax, he pictures this poor person crying out, "Who will rescue me from this body that is subject to death?" (7:24) The answer quickly follows, "through Jesus Christ our Lord!" (7:25). Now by the power of the Spirit, we can fulfill the "just requirement of the law" (8:4, NRSV), which Paul later tells us is to love our neighbor (13:8-10).
Paul does say some things in his writings that paved the way for later Christians like Tertullian to consider Christians a "third race," neither Jew nor Gentile.  In 1 Corinthians 9:20-21, Paul says that "to the Jews I became like a Jew, to win the Jews... to those not having the law I became like one not having the law." But this statement is really about keeping the Jewish Law--especially the parts like circumcision that distinguished Jew from Gentile--rather than about him abandoning his identity as an Israelite. Romans 11 gives us the bigger picture.
For a time, the hearts of many Jews are hardened not to believe. Certainly there remains a remnant of "true Israel" at present (e.g., Rom. 9:6), but most of ethnic Israel does not currently believe. God is instead at this time grafting into the tree of Abraham the "full number of the Gentiles" (11:25). Israel's lack of faith, in God's plan, has created an opportunity for the Gentiles to hear and believe the good news as well (e.g., 11:11). But once that full number of the Gentiles comes in, then Israel itself will believe too: "all Israel will be saved" (11:26). The "part" that is hardened (11:25) will become the "all" that believes (11:26).
For Paul, Israel thus remained the people of God. Jews who believed remained part of true Israel. Gentiles who believed could become a part of true Israel as well.
 We have Krister Stendahl, more than any other expert on Paul, to thank for these observations. See "Paul and the Introspective Conscience of the West," now in Paul Among Jews and Gentiles (***). I dedicated the second volume of this series to him and N. T. Wright.
 To the Gentiles 1.8.