Okay, a whole host of questions. Let me try to address them accurately and succinctly.

1. There was hardly ever a debate about keeping the OT as Canon. Except Marcion. Marcion thought the OT depicted a different god and one in conflict with the god of the New Testament. Marcion formulated his own NT canon, of basically a select and edited version of Paul’s letters + a heavily edited version of Luke. Marcion probably forced the rest of the early church to reflect more seriously on some of these issues.

The Old Testament was received as canon because (a) the first Christians treated it as inspired, (b) Jesus in the New Testament treats it as inspired, (c) the New Testament makes very little sense without the Old Testament – not just on an intellectual level, but the theology of Jesus as Messiah and the whole underpinnings of the Christian theological apparatus collapse if you simply jettison the Old Testament. It made little sense to ‘write it off’.

1b – Inconsistencies? Certainly many people perceive inconsistencies between the two testaments. Christians throughout history have rarely been unaware of those issues, but generally their prior commitment to treating these books as inspired scripture commits them to addressing those perceived problems in other ways. Whether one finds those attempts convincing or not is another question. Really I’m pointing out that “inconsistencies” weren’t a strong enough reason to reject the OT canon.

The New Testament preaches love and understanding while the old preaches harsh laws and severe punishments.

Is a statement and not a question. It’s not an uncommon view. It echoes what Marcion thought about the two testaments. It hasn’t been the mainstream and dominant view of Christians throughout history (generally speaking).

In the New Testament, Jesus sacrifices himself to cleanse christians of their sins, while in the Old Testament and in Judaism, Hebrews are seen as the chosen people. Would the Church not benefit from calling this a misinterpretation or manipulation of the texts by the "jewish heretics"? Would it not benefit more from calling christians god's chosen people (being as it was that the church was the Christian Church)?

I think your understanding suffers from anachronism. There are no Christians before Jesus. And Jesus was clearly Jewish. Most Christian traditions have a theology that runs something like this: in the Old Testament, God saves the Jews out of Egypt and constitutes them as a nation at Sinai (this is the book of Exodus) and gives them a covenant: brings them into a unique binding relationship set out in the Law of Moses. That’s what ‘makes’ them the special people. In the New Testament Jesus comes as the fulfilment of the Old Testament promises and in particular fulfils and ends (in various senses) that OT covenant. This in effect ends the role of Jews as God’s chosen people. Jesus also initiates a new covenant, in which the church is constituted as the new ‘people of God’. Current Christian denominations differ in whether they view Jews as having an ongoing ‘particular’ status or role in relation to God, but I think this is general enough to cover most mainstream historic views.

For the same reasons the church didn’t really stand to gain by rejecting the OT wholesale, it doesn’t merely not benefit, but doesn’t make sense to say ‘Christians are God’s chosen people and Jews never were’ because it undermines the OT canon and thus makes the person of Jesus and his messiahship unintelligible (apart from making up a whole new explanation).

Overall, your view doesn’t accurately match how Christians have historically viewed these questions about the Old Testament, which is precisely why the Church hasn’t done what you suggest it ought to have.

It seems like you're making two different claims here, and I want to address them separately. One is that "the New Testament preaches love and understanding while the old preaches harsh laws and severe punishments" and therefore they are inconsistent and should not be used by the same religious group. This is basically a question of church doctrine and scriptural interpretation that you are better off asking in r/christianity.

The other is the practical claim, that the church would have benefitted from denouncing the Hebrew bible and calling it a misinterpretation by Jewish heretics. First of all, to some extent, this did happen. There were early Christian groups (eventually declared heretics) who argued that the Hebrew bible was actually written by the devil and is counter to God. And the institutional church often did say that some elements of the way that Jews read the bible are manipulations or misinterpretations.

But they never completely threw it out, despite those early attempts, largely because Jesus and his early followers were first-century Jews. They believed that the Hebrew bible was the word of God and they followed its teachings and rules. More importantly, they did not seem to experience its rules the way you do, as harsh and cruel: on the contrary, they saw them as the gifts of a loving God.

They apparently believed these things so much and preached them so well that the New Testament's non-Jewish authors even quote bible verses from the Hebrew bible, and talk about Jesus saying that he is coming to fulfill the law! If you read Paul's letter to the Galatians, you can see that the Galatians are not Jews, but see the laws of the Hebrew bible as so in keeping with the project of Christianity that they all want to be circumcised. Paul, of course, doesn't agree with that, and his view wins out in the church, but you can see that love and respect for the laws of the Hebrew bible were very popular in the early church.

By the time the church was becoming institutionalized, Jesus's sayings about fulfilling the law, all of the citations from the Psalms and Prophets, and so on, had become a part of the way Christians talked. Taking them out would no longer have been feasible (since the writings of the NT and other bible commentaries were so widely read and distributed), and they didn't want to, because they believed that they were divinely inspired. So they continued to make some of the arguments that you suggest, such as that after Jesus, some rules in the Hebrew Bible are no longer relevant, but they didn't see that as getting rid of the Hebrew bible.