Gentiles nor the Church is "spiritual Israel".

For no one is a Jew who is merely one outwardly, nor is circumcision outward and physical. But a Jew is one inwardly, and circumcision is a matter of the heart, by the Spirit, not by the letter. His praise is not from man but from God. / ROMANS 2:28-29

Consider the reading and context of Romans chapter 1-3 first and foremost. Nonetheless, Romans chapter 2 Verses 1-11 is in reference to God showing no partiality - to the Jew first, then to the Gentile regarding those who not only practice such evil things (1:22-23) as deserving to die, but also give approval to others who likewise practice them. In that, everyone who judges another; have no excuse - for in passing judgement on another they only condemn themselves. And those who practice such evil deeds will not escape the judgement of God; storing up wrath against themselves on the day of God's wrath. In light of this fact, God will render to each one according to their works - to the Jew first then to the Gentile. 

The Immediate Context:

(1) Verses 12-13 is in regards to both groups; JEW AND GENTILE.

(2) Verse 14-16 is in regards to the GENTILES.

(3) Verse 17 is the transition from Gentile to JEW. From verse 17 to 25; Paul is addressing Jews - only to point out their hypocrisy in regards to the Law.

(4) Verses 26-27 Paul makes the transition from Jew back to Gentile only to contrast the uncircumcised Gentile who keeps the Law against the circumcised Jew who doesn't in light of their hypocrisy.

(5) Verses 28-29 - Paul is clarifying to the Jew ONLY that - the only ethnic Jew (not Gentile) who's praise is from God is a ethnic Jew who's heart has been spiritually circumcised by the Spirit. Paul is NOT saying that Gentiles are considered to be (spiritual) Jews nor Israel just because they too may be circumcised in heart as well. Paul has already made the claim that the name of God is blasphemed among the Gentiles because as a Jew they were considered hypocrites as to preach to others (the Gentiles) concerning the Law and their disobedience to it but in fact they were dishonoring God. From verses 17-29 Paul was rebuking the Jews for the hypocrisy in regards to the Law and their boast in physical circumcision. In fact, Paul continues to address the Jews (not Gentiles) in Chapter 3 going forth. The only reason Paul introduced the Gentiles in verses 14-27 is to rebuke the Jews for their confidence in the Law and circumcision of flesh only; as to be made right with God. The Gentiles are NOT "spiritual" Israel. Nor is the Church considered  to be "spiritual Israel". Such an interpretation is being read into the text. 

However, are elect Gentiles circumcised in heart along with elect Jews? Absolutely! But a distinction still remains between the two; and this continued distinction is seen throughout the Book of Romans. Ethnic Jews are the natural branches and Gentiles are wild branches that have been grafted into Israel's olive tree. The Church consist of both Jew and Gentile - "true or spiritual" Israel are the "natural branches" of the Olive Tree of which the Gentiles are not (romans 11:23-29). The Gentiles could never be considered Israel for they are not the natural branches! As regards to election; the true "spiritual Israel" is beloved by God for the sake of the promise made to their forefathers. However, 'mere' ethnic Israel in flesh only are considered to be the Gentiles enemies for the Gospel sake (romans 11:29). Therefore, the Gentiles cannot ever be addressed as "spiritual Israel" as to usurp only ethnic Israel's rightful status as believers in Yeshua who's praise is from God. This fact has clearly been plainly written.

Lest you be wise in your own sight, I do not want you to be unaware of this mystery, brothers: a partial hardening has come upon Israel, until the fullness of the Gentiles has come in - ROMANS 11:25

By Aaron Fisher