Q
Do Rev 5:10 and Matt 5:5 suggest that some people will live on the earth rather than in heaven?
A
Yes. During the Millennium there will be three distinct population groups. According to Rev. 21:27 the redeemed Church will live in the New Jerusalem, a facility in the general proximity of Earth but not on it, that we commonly think of as Heaven. Along with the Lord, we will reign on Earth (Rev. 5:10) although we won’t live here.
Believing Jews will live in Israel, which will be enlarged to the size God had in mind for it all along to accommodate its people, and believing Gentiles will occupy the rest of Earth. These two groups are the ones referred to in Matt. 5:5.