John Winthrop's sermon "A Model of Christian Charity" (which you can read online) is an extraordinarily famous sermon, which is referenced by American politicians to this day.
In this sermon, John Winthrop compares the American colonists to "a city upon a hill":
We shall find that the God of Israel is among us, when ten of us shall be able to resist a thousand of our enemies; when He shall make us a praise and glory that men shall say of succeeding plantations, "may the Lord make it like that of New England." For we must consider that we shall be as a city upon a hill. The eyes of all people are upon us. So that if we shall deal falsely with our God in this work we have undertaken, and so cause Him to withdraw His present help from us, we shall be made a story and a by-word through the world. We shall open the mouths of enemies to speak evil of the ways of God, and all professors for God's sake. We shall shame the faces of many of God's worthy servants, and cause their prayers to be turned into curses upon us till we be consumed out of the good land whither we are going.
What point is John Winthrop trying to make here by referencing "a city upon a hill"? How would this have been interpreted by his audience?
I'm asking this question because this passage tends to be interpreted by modern audiences as one of the first instances of American exceptionalism. I'm trying to get a sense of whether that is an after the fact interpretation or a reflection of how the sermon was interpreted at the time it was created.