There are at least two reasons. The location and characteristics of the Land of Israel fostered faith and reliance on a Higher Being while at the same time positioned the nation that lived there to have a disproportionate amount of influence in the ancient world.
A Land of Privileged PositionThe Land of Israel holds a unique place in the geography of the world. It is the only place in the world that serves as a land bridge for three continents. Namely, it connects Africa with Asia and Europe. To the west of Israel is the Mediterranean Sea and to the east is the Arabian Desert. So if you wanted to walk from Egypt to anywhere in Asia or Europe, there was a bottleneck you had to pass through called the Land of Israel ... unless you somehow figured out how to walk underwater without drowning or walk across a blazing desert without dying of thirst.
So although the size of the land of Israel is about the size of New Jersey, the importance of that land in the ancient world cannot be measured. It was constantly coveted and fought over by the powers in Africa, Asia, and Europe (for example: Egypt, Assyria, Babylon, Persia, Greece, and Rome). The following website illustrates in a 90 second video how many times it has changed hands over the last 4,000 years: http://www.mapsofwar.com/images/EMPIRE17.swf
From this we can see that God strategically placed His people on the most important land bridge of the ancient world, so that they could be a witness to the world. The Israelites could be missionaries just by stepping out of their front door. The nations of the world were passing by their doorstep every day, and gave them ample opportunities to share with them the truth about their Creator. They were to be a "kingdom of priests" (Exod. 19:6) ... in other words, a nation that served as a link and mediator between God and all the other nations.
Looking to the New Testament period, it is no accident that God chose this to be the place where His Own Son would be born, would conduct His public ministry, would die on the cross, and would rise from the grave. God the Father placed His Son in the center of the civilized world of the 1st century A.D.
A Land that Fostered FaithSecondly, the land of Israel itself was a land that fostered faith. This can be seen in a couple of different ways.
For one, the inhabitants of this land were dependant on rain to produce food. Deuteronomy 11:10-12 states:
For the land that you are entering to take possession of it is not like the land of Egypt, from which you have come, where you sowed your seed and irrigated it, like a garden of vegetables. But the land that you are going over to possess is a land of hills and valleys, which drinks water by the rain from heaven, a land that the Lord your God cares for. The eyes of the Lord your God are always upon it, from the beginning of the year to the end of the year. (ESV)
Moses is pointing out to the people that the land of Canaan doesn't have a nice big river running through it (like Egypt does) that serves as a reliable and convenient source of water for their crops. Instead, the Promised Land was entirely dependant on rain. No rain ... no food. And who controls the rain? God, of course! A lack of rain in a given year was a faith-building experience. It was a reminder to the Israelites that they were dependant on God, and it should have driven them to their hands and knees, pleading for the help of their Creator.
Another way that the land fostered faith was its location on this all-important land bridge that we already mentioned. With the modern inventions of ocean liners and aircraft, the importance of this land in the world's economy has diminished, along with its military importance. But placing ourselves back in the biblical period reveals a deadly truth: The inhabitants of this land were inevitably the targets of more powerful nations who wanted control over the world's most important land bridge. The Land of Israel was the ancient world's equivalent of the Suez Canal or Panama Canal today. It was the only practical means of getting from one continent to another. And whoever controlled that land bridge, controlled much of the world's trade.
So the people who lived in Palestine were in a vulnerable position. They were constantly threatened by famine and by enemies. They would have been keenly aware of their dependence on a Divine Power to provide them with rain and for protection from powerful nations who wanted control over their land.
Unfortunately, the Israelites all too often chose to place their faith in false gods instead of in the true God. God placed them in a location where they could be a light to the nations, but they turned away from Him and God brought judgment on them because of it. (See Ezekiel 5:5-8.)
What about you? Where has God placed you? Wherever you are, you have at least some level of influence on the people around you. Are you using that as an opportunity to share the Good News? And wherever you are, God is going to bring some trials your way that will stretch your faith. Will you use those opportunities to grow closer to the God who loves you, or will you turn to your own strength or other things to get through it?
God places His people exactly where He wants them, when He wants them, so that they can do His work and grow closer to Him. And He has tremendous blessings for those who choose to follow Him in faith.