The law describes how we should live our lives in harmony with God and other people. As a means of justification, the law demands complete obedience. In the New Testament, the law demands of us as disciples of Christ total commitment to Him and complete obedience to His will. Anything less than that is sin.
The gospel is the message that through the death and resurrection of Christ, our sins have been forgiven. The term gospel is sometimes used in the Bible or by us to represent the whole Christian message. An example is the phrase: "the gospel of John". But, I will use the term gospel in its narrow sense to refer the specific message of forgiveness.
Often the term law elicits a negative response. We either picture law as the detailed list of rules given in the old testament for the nation of Israel or it reminds us of someone who tries to live his life strictly according to certain rules without regard to the spirit of the rule; a legalist. But, a reading of Psalm 119 will show us how we should feel about the law: we should love it. The law is terrible only when we try to use it as a means of establishing our own righteousness. Then it condemns us. But while trusting Christ for our righteousness, the law can be embraced as a gift from God. It shows us how to live a life full of joy, a life designed by God. A lifestyle based on the breaking of God's laws will leave a person empty and miserable in the end, because the law has consequences built into it not only for the final judgment, but in this life also.
The law tells us how to live. In the new testament, the law has changed its emphasis. The regulations regarding the nation of Israel have been replaced with directions directing us to unite with other believers to form a church, and use the power of the Holy Spirit to spread the message of Christ throughout the world. Through the example of Christ and the early church, the example of how we should live in our personal relationship with God has also been made clear. Even though this is law, it is a great blessing from God to receive it.
Since the law tells us how to live and the Gospel is the message of forgiveness, you would expect that it would always be easy to tell them apart. However, it is not always as easy as it appears. Luther felt that the person who was able to differentiate between the law and the gospel should be called a Doctor of Holy Scripture, since this is impossible to do without the help of the Holy Spirit.
Our reaction to a particular Bible verse can sometimes be law to one person and gospel to another. For instance, two verses we would categorize as gospel verses would be Psalm 103:12, "As far as the east is from the west, so far has He removed our transgressions from us." (NIV) and Ephesians 2:8,9 "For it is by grace you have been saved, through faith - not by works, so that no one can boast." (NIV) However, if the reaction to the Ephesians verses is "I have been boasting, so I am guilty of sin", the reaction is one of law.
Two verses we would categorize as law verses would be John 14:21 "Whoever has my commands and obeys them, he is the one who loves me. He who loves me will be loved by my father and I too will love him and show myself to him." (NIV) and I Peter 3:15 "But in your hearts, set apart Christ as Lord. Always be prepared to give an answer to everyone who asks you to give the reason for the hope that you have. But do this with gentleness and respect." (NIV) However, if the reaction to the John 14:21 is to focus on the love of Christ and to be reminded of the sacrifice He made, then it is possible to see this as gospel.
We see that each individual's reaction to a verse may be different depending upon how the Holy Spirit uses it in his heart. Any reaction that causes us to examine ourselves or change our behavior is a reaction to law. Any reaction that causes us to trust the forgiveness and acceptance by Christ is a reaction to Gospel.
I was told that years ago, in Canada, there were two evangelists who traveled together. One would preach the law and the other would preach the gospel. They had a great impact on those to whom they preached. Many Lutheran preachers will also make sure they incorporate both law and gospel into each sermon (not half and half, because it isn't found in those proportions in the old and new testament either; the Bible is mostly law by volume, but the gospel message is accorded the most importance).
In dealing with people on an individual basis, the person sharing the message of God needs to be sensitive to whether to share the law or the gospel. If the person is ignorant of or hostile to the message of God, the person needs to hear law, explaining the reality of God, that God holds them accountable, and that the only way of salvation is Christ. If the person is accepting of these truths, but fearful of judgment, he needs to hear the gospel of the forgiveness of sins. The goal of the scripture is summarized by the saying, "to comfort the afflicted and to afflict the (falsely) comforted". However, generally the message should contain both the law and the gospel. We do not know anyone's heart completely, so we need to present both the law and gospel, then trust the Holy Spirit to use whichever He wishes to deal with the heart of the person.
Even experienced Christians need to hear and trust the gospel message. "The just shall live by faith". That is why God put the message of the forgiveness throughout His word. That is why two sacraments were instituted to present the word of forgiveness in an individual and physical way, even though it must be believed to be effective.
How does a Lutheran deal with assurance? If a Christian has problems with assurance, it should be pointed out that God has forgiven his sins and He has the power to keep him. (gospel). If a person has turned from God, he needs to hear about the consequences of sin (law). The ability to distinguish between law and gospel can be a powerful tool to understand the Bible and one's relationship with God.