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I would briefly reconstruct from Genesis, the circumstances leading to this change in names.

In the very beginning of His conversation with Abram, God says to Abram:

Gen: 12:2 (NET)

Then I will make you into a great nation, and I will bless you, and I will make your name great, so that you will exemplify divine blessing.

At this time he was 75 years old and God tells him that his descendent would be numerous (Gen.13:16). But because of his advancing age, Abram asks God that how this can be, when he continues to be childless and whether He means that Eliezer of Damascus would the heir for this to come true. (Gen.15:2-3). In verse Gen. 15:4 God tells Abram that a son born from his own body would be the heir.

But then possibly due to lack of faith in God’s promise, Sarai did not have patience to remain trusted in God and gave their salve girl Hagar to Abram(Gen. 16:2). We can figure out that Ishmael was born because Abraham and Sarah did not trust God to fulfil his promise that their descendants would be from both of them.

Abram was 86 years of old when Hagar gave birth to Ishmael. (Gen.16.16). Thereafter there is no record in the Bible concerning the 13 years of Abram’s life following the birth of Ishmael. After 13 years, when Abraham reaches 99 years of age God instructs Abraham to walk blameless before Him:

Gen. 17:1-2 (NET)

When Abram was 99 years old, the Lord appeared to him and said, “I am the sovereign God. Walk before me and be blameless.Then I will confirm my covenant between me and you, and I will give you a multitude of descendants.”

Here God’s rebuke appears to indicate that during these 13 years, Abram did not walk before God, and as a result, his life was full of blame. Also notice that God re-introduces himself as “God almighty.” God puts a condition to Abram, saying walk before me blameless and only then He will “confirm” His covenant between Him and Abram. Here we see that earlier covenant was not valid for those 13 years and God wants to reconfirm the same again. So God again renews His covenant with Abram:

Gen. 17:4-6 (NET)

“As for me, this is my covenant with you: You will be the father of a multitude of nations. No longer will your name be Abram. Instead, your name will be Abraham because I will make you the father of a multitude of nations. I will make you extremely fruitful. I will make nations of you, and kings will descend from you.

Note here that in Gen. 12:2 it is only one great nation, whereas in Gen 17.4-5 God talks about multitude of nations. Here, God changes the name of Abram to Abraham and Sarai to Sarah. So Abram (Noble Father) becomes Abraham (Father of many) and Sarai, (Princess) becomes Sarah(Mother of Nations).

What is the significance of changing their names? What does it symbolize? Is there any relation of this change to the future coming of messiah and consequently to Multitude of nations (Christianity)?

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Abram to Abraham

God had promised Abram that he would have a son and that it would be through his wife Sarai. Abram's name means "Exalted Father", which may have proven to be an embarrassment as he aged without children. This fits with God's promise, but he didn't receive that name from God but from his father.

God gives him the name "Abraham", which means "father of many". This reinforces God's promise to Abraham that he would not only have a son through Sarai, but also that he would be the father of many nations. This is true through Ishmael, Isaac, and the sons of Keturah--the wife he took after Sarah died.

Sarai to Sarah

As for Sarai changing to Sarah, the difference is more subtle, being from "princess" to "princess of many". This does not apparently refer to many nations per se, but to many people. This is significant, because Sarah was the mother of one nation, while Abraham was the father of many nations. Still, the name comes from God and is a sign of the promise God had made to her.

Abram's Call to Be Blameless

It is interesting that Abram receives a call to walk righteously. Previously, Adam was created in the image of God and Noah was found to be a righteous man, blameless among the people of his day. Abraham, however, did not initially measure up to that standard. He lied about his wife on more than one occasion.

However, God had already blessed Abram in many ways by now, so he had the assurance that God was with him. He had yet to perhaps surrender fully to God, though. It was not that he was full of blame, but was not blameless either. Thus, Abraham, whom God had chosen to be the recipient of a new covenant through which God would reveal Himself to the world, was called to holy living prior to God's fulfillment of the promise.

New Name for Believers

The implication is that we all receive "names" from the world--the rich kid, the smart kid, the fat kid, the slow kid, the jock. However, God has a promise for our lives as well, and His name for us is different. It expresses our personal relationship with God and the high value He places on us.

For I know the plans that I have for you,’ declares the Lord, ‘plans for welfare and not for calamity to give you a future and a hope. Jeremiah 29:11 NAS

Whoever has ears, let them hear what the Spirit says to the churches. To the one who is victorious, I will give some of the hidden manna. I will also give that person a white stone with a new name written on it, known only to the one who receives it. Revelation 2:17 NIV

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Nice answer. But why God is saying to Abraham to walk blameless. Could it be that God was not happy with Abraham for giving birth to Ishmael being outside his marriage? And for that reason could it be that God wanted to renew His relationship with Abraham by completely giving Abraham a new identity? –  Seek forgiveness Mar 21 '13 at 13:26
    
@jayyeshu Updated with a note on that. –  Narnian Mar 21 '13 at 13:34
    
Also@Narnia, you said Abraham's numerous descendents are through Ishmael, Isaac and Keturah. In that case who are todays descendents of Keturah? And can we say that Muslims are Abrahams descendents through Ishmael, irrespective of whether they are right or wrong in what they practice and believe? –  Seek forgiveness Mar 21 '13 at 14:04
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@jayyeshu We cannot say Muslims are Abraham's descendants any more than we can say Buddhists, Hindus, Sikhs, of atheists are his descendants. He is not the father of many religions, but many nations. The Arab race descends from Ishmael, the Jews from Isaac. Abraham's sons through Ketura are identified in Chronicles and Genesis 25. "The sons of Keturah...were Zimran, Jokshan, Medan, Midian, Ishbak and Shuah. And the sons of Jokshan were Sheba and Dedan. The sons of Midian were Ephah, Epher, Hanoch, Abida and Eldaah..." That appears to be all we know from Scripture. –  Narnian Mar 21 '13 at 14:10
    
@jayyeshu No, I wouldn't say it is reserved to just Jews and Christians. There is a physical fulfillment of the promise and also a spiritual one. The Spiritual descendants of Abraham are all people of faith--both prior to and after the resurrection of Christ. –  Narnian Mar 21 '13 at 14:38
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According to Sefer ha Yashar, an ancient midrash that has the backstory on many of the Torah narratives, Terah father of Abram had been appointed by Nimrod as a "prince". Abram was born late in Terah's life, and as a statement to his own honor, Terah named him because of his own pride, "exalted father." You really have to question a guy who would name his son "My dad is an important guy." Abram had already been called to Canaan and had obeyed when God finally renamed him. When God changed his name to Abraham, he not only divorced him from his father's legacy but provided him his own great identity before God. His name was both a promise and a blessing. In the New Testament, specifically Revelation, Jesus promises to rename all of his brothers (his followers) in the next life, but the name will be private between each one and God.

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