3 Blessed be the God and Father of our Lord Jesus Christ! According to his great mercy, he has caused us to be born again to a living hope through the resurrection of Jesus Christ from the dead, 4 to an inheritance that is imperishable, undefiled, and unfading, kept in heaven for you, 5 who by God’s power are being guarded through faith for a salvation ready to be revealed in the last time. 6 In this you rejoice, though now for a little while, if necessary, you have been grieved by various trials, 7 so that the tested genuineness of your faith—more precious than gold that perishes though it is tested by fire—may be found to result in praise and glory and honor at the revelation of Jesus Christ. 8 Though you have not seen him, you love him. Though you do not now see him, you believe in him and rejoice with joy that is inexpressible and filled with glory, 9 obtaining the outcome of your faith, the salvation of your souls.
Peter attributes the believer's new life to God. It is only through the work of God that we can be born again. This he attributes to God's great mercy. Mercy, as we've seen regularly in previous devotionals, is a primary attribute of God as seen in his self declaration to Moses in Exodus 34:6, "The LORD passed before him and proclaimed, “The LORD, the LORD, a God merciful and gracious, slow to anger, and abounding in steadfast love and faithfulness...". In no other work is God's mercy more clearly demonstrated than in the redemption of sinners to newness of life.
The born again language is often used in Christian circles today to describe the salvation experience. This is a biblical phrase and a great description of salvation, but, as with any overused expressions, it has lost a lot of its force. Peter likely adopts this expression from Jesus himself and his conversation with Nicodemus, a Jewish religious teaching, in John 3. What Peter means here is nothing short of the believer entering into a whole new form of existence in Christ. (See 2 Cor. 5:17; Col. 3:9-10; Gal. 2:20)
As the diagram shows, Peter says we are born again into two things: 1. a living hope and 2. an inheritance. The living qualification could refer to one of two things: 1. it's a growing hope, meaning the believer will experience more and more hope until the second coming of Jesus. 2. it's a living hope as oppose to a dead hope, implying that the other philosophies of this world give only a dead hope. It seems to me option 2 is best since he is likely also drawing a comparison to the fact that Jesus is himself living and he is the object of our hope. This is evidenced by his next phrase: our living hope is through (by means of) the resurrection of Jesus from the dead. Because Jesus has risen from the dead and God has caused us to be born again, now identifying with Christ in his resurrection, we have an eternal hope.
Also, God is often referred to as "the living God" in Scripture. It occurs 28x throughout the Bible. This is usually used to distinguish YAHWEH to the other pagan gods of the world. He alone is the true living God. The others are not gods at all, merely idols. Paul, in Romans 15:13 calls God "the God of hope", linking God intrinsically to hope. So by saying living hope here Peter is saying that the hope we have is true, genuine hope because it is based in Christ's resurrection; it is eternal and founded in God himself and his promises.