1977 was a particularly important year in the history of biblical studies. It was the year in which E. P. Sanders published Paul and Palestinian Judaism, one of the landmark books of the century in the study of the New Testament.  It was not the first book nor was Sanders the first scholar to argue that the predominant "Lutheran" paradigm for understanding Paul was anachronistic. Nor has Sanders' work gone without critique. What the book did was change the tide toward reading Paul against his Jewish context.
Sanders' book reflects one of the most significant turning points in biblical studies because, after it, the interpretation of the New Testament could no longer simply read Paul or Jesus against the backdrop of the Christian history of interpretation.  Sanders forced interpreters to read Jesus and Paul against their Jewish context--and an authentically understood Jewish context rather than the "straw man" Christian tradition had developed and so long utilized.
Perhaps the central claim that Sanders' book disputed was the idea that Judaism was a religion of "works righteousness." Judaism, so the dominant interpretation went, was a religion in which you tried to earn your salvation by doing good works. Paul then counters this form of religion with a religion of grace, whereby an individual is saved by grace alone (sola gratia) and by faith alone (sola fide). The impact of the Protestant Reformation on this interpretation of Paul and Judaism is obvious. Martin Luther saw in Paul's conflict with his opponents the ideological conflicts he himself was having with the Roman Catholic Church.
What Sanders did was to free us from these interpretive lenses by methodically working through the texts of Second Temple Jewish literature themselves, showing that this portrayal of Judaism as a "graceless" religion simply could not stand up against what the texts themselves said. What he found instead is that the grace of God is almost without exception the presupposition of any expectation that a person's actions might play a role in a right standing before God. Jews did not keep the Jewish law in order to "get in." They kept the law to "stay in." 
Sanders' famous phrase is "covenantal nomism." Jews kept the law as a response to God's grace, not to earn it. A Jew was, of course, born into the people of God. Such a person did nothing themselves to get in. Rather, keeping the law was simply God's expectation to stay in the people of God. To be sure, Sanders was criticized by some Jewish scholars for worrying about some distinctions that really were not of concern to Jews themselves. Jacob Neusner, for example...
[for more along these lines, see my overview of Romans: Paul: Soldier of Peace]
 E. P. Sanders, Paul and Palestinian Judaism: A Comparison of Patterns of Religion (Minneapolis: Fortress, 1977).
 The theological interpretation of the early twenty-first century, while representing a shift back in confessional circles toward reading the New Testament against its later Christian context, does so not on historical-critical grounds but on hermeneutical grounds. The earlier Christian interpretations of Jesus and Paul were done unreflectively and uncritically--such scholars thought they were reading Jesus and Paul in their historical context. By contrast, theological interpretation at its best is done more on the basis of textual polyvalence and a postmodern hermeneutic that is more self-reflective.
 E.g., Paul, 420.