Judaism maintains that the righteous of all nations have a place in the World To Come. Traditional Judaism generally recognizes that Muslims and other B’nei Noach worship the same G-d that Jews do and those who follow the tenets of their religions can be considered righteous in the eyes of G-d. The most commonly used word for a non-Jew is goy. The word goy means nation and refers to the fact that goyim (plural for goy) are members of nations other than the Children of Israel. There is nothing inherently insulting about the word goy. Because Jews have had so many problems with anti-Semitic non-Jews over the centuries, the term goy has taken on some negative connotations, but in general the term is no more insulting than the word gentile.
Contrary to popular belief, Judaism does not maintain that Jews are better than other people. Although Jews are referred to as G-d‘s chosen people, Jews do not believe that G-d chose them because of any inherent superiority. According to the Talmud (Avodah Zarah 2b), G-d offered the Torah to all the nations of the earth, and the Jews, who were the last ones offered the Torah, were the only ones who accepted it and then only because G-d held a mountain over their heads. (In Exodus 19:17, the words generally translated as “at the foot of the mountain” literally mean “underneath the mountain”.) Another traditional story suggests that G-d chose the Jewish Nation because they were the lowliest of nations and their success would be attributed to G-d‘s might rather than their own ability.
Because of the Jews’ acceptance of Torah, Jews have a special status in the eyes of G-d. That special status is lost when the Jews abandon Torah. Furthermore, the blessings that Jews received from G-d by accepting the Torah come with a high price: Jews have a greater responsibility than non-Jews. While non-Jews are only obligated to obey the seven mitzvot given to Noah, Jews are responsible for fulfilling the 613 mitzvot in the Torah, thus G-d will punish Jews for doing things that would not be a sin for non-Jews.