This verse was revealed after the battle of Uhud when the Jews were convinced that the Muslims were defeated. Defeat refers to losing land and losing battles. However, the Muslims did not lose any land nor any battle in Uhud. It was just that the archers went against the instruction of the Prophet r when he instructed them not to leave the noble hill for the battle field. So they went down from the hill thinking that the battle had ended. Hence Allah U wanted to teach them a lesson for going against the commands of the Prophet r so that they will learn what is faith and obedience. Many of the people of the Book would love and want that the Muslims renounce their religion and revert to disbelief so they said to them, “If he was really a prophet, he would not be defeated nor would you all have been defeated with him”. In this verse:

﴾كَثِيرٌ مِنْ أَهْلِ الْكِتَابِ﴿, the term “Many of the people of the Book” is used and not “All of them” because from amongst them were those who entered into Islam and followed the Prophet r hence generalisation would not be correct.