Covenant Theologyis designed to show the unity in God's purpose in human redemption. It is called "covenant" theology not because of an emphasis on the Biblical/historical covenants as such but on certain theological covenants -- the covenant of redemption, the covenant of works, and the covenant of grace. The covenant of grace is essentially the promise made in Gen.3:15 of the coming deliverer, and all of history is viewed as a progressive unfolding of this covenant. Thus, the New Covenant, in Covenant Theology, is not understood as a new covenant actually; it is rather a new "administration" of the covenant of grace, as was the Mosaic Covenant before it. One covenant with various administrations is the essence of Covenant Theology on this point. Therefore, the Old Covenant is seen as an essentially gracious covenant, not a legal one. Further, with this emphasis on the unity of God's purpose there is a strong tendency in Covenant Theology to carry over the old order into the new: Israel is the church, the law of the Old Covenant is the law of the New, and so on.
Dispensational Theology emphasizes rather the various differencesin God's dealings with men. A "dispensation" has to do with the various administrations of Divine truth. With new revelation come new responsibilities and/or privileges. This change results in a new "economy" or dispensation. With this emphasis on the various changes in God's program, Dispensationalism labors to show the differences between the old and new economies or dispensations. For the (traditional) dispensationalist, there are two separate peoples of God running through all history and even eternity, law is a thing of the past and not relevant to the New Covenant believer, and so on.
NCT claims simply to have middle ground between these two. We are not satisfied with the simple "one covenant -- two administrations" idea of Covenant Theology. In our judgment this results in a rather "flat" reading of Scripture which fails to appreciate the advance, the distinctively "new" character of this Messianic age. Nor are we satisfied with the over-compartmentalizing tendency of Dispensational Theology. In our judgment its "no law" and "two equal peoples" notions failed to appreciate the unity of God's nature and purpose. And so we find ourselves somewhere between the two traditional answers. We are happy to see representative scholars from both sides of the discussion moving toward center in their respective discussions of various particular issues involved, and we are more comfortable with the progress they offer.
