“Would you be offended if someone said that same thing, only replacing the words with Aryan, European, or white?”
Chosen People does not mean “better.” It means “chosen,” as in God picked said people, for better or for worse.
Indeed, I was taught (in Hebrew school) that God picked the Jewish people because they were the least of His peoples, and He picked the least of the peoples to show just how powerful He is.
Chosen is just chosen.
I can live with that, whether I agree with it or not, but saying that they have different souls sounds a lot to me like what people used to say re: whites vs. blacks.