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When God gives Israel its land, the people are supposed to "utterly destroy" the nations already living there. Hmmm. If you're curious about ancient and modern-day genocide, head on over to "Current Hot-Button Issues and Cultural Debates."
The Israelites are not to intermarry with these people because, presumably, the children of these marriages would be taught to worship other gods, and the Lord would be angry. People are still worked up about intermarriage, too—the ancients were no different from us in this regard.
Moses now tells Israel why God chose them. Sure, every other group of people was larger than them. But the Lord loved them anyway because he made a covenant with Abraham, Isaac, and Jacob in Genesis. This is a loyalty thing.
The Lord is loyal to those who love him and keep his commandments, but he punishes those who reject him. Translation: free stuff if you follow the laws, and a plague on your house if you break them. So if they serve God well, they'll have lots of food, children, land, and help from disease.
All of this leads up to the conquest of Canaan.
If the people are afraid that they will not be able to take the land because there are too many enemies to conquer, they should remember what the Lord did in Egypt—i.e., save their butts.
God will fight for them, but only gradually. If Israel conquers the land too quickly, wild animals may become too plentiful.
Think about this gradual business in terms of promises—"gradual conquest" can have a few setbacks and still be successful, right? If the text promises too much, and the Israelite armies are defeated, then people will lose faith in God much more quickly.
And hey, guess what? No idols. What—you already heard that? Too bad. Hear it again.