Have you ever come across this objection? Muslims will often make this claim when you speak with them. What is a good approach when it comes up?
You can start by pointing to the bible, and the lineage of Jesus, or the scriptures that show God's people are Israel (the children of Jacob/Israel, son of Isaac)and not Ishmael. This will inevitably bring up the objection about the bible being corrupted which is where you want this conversation to go.
It all will come down to the bible for a conversation with a Muslim. In this objection, they must show that their claim is more reliable. Unfortunately for them, the bible was there first, and their belief that it was deliberately corrupted is nonsense.
It is their religious writings that are unreliable because they came later and even borrowed from the biblical texts enough to try to lend some authenticity.
A final point to try and get in there (if the conversation is still reasonable at this point) is that all nations can be God's people now. Through Jesus, and the cross, salvation is no longer through a single race. Circumcision is of the heart.