# You also are ... being built up to be a spiritual house

Just as people used stones to build the temple in the Old Testament, believers are the materials that God is using to build a house in which He will live. 

# You also are like living stones

Peter compares his readers to stones that are alive.

# that are being built up to be a spiritual house

"that God is building into a spiritual house" 

# a holy priesthood that offers the spiritual sacrifices

Here the position of priesthood stands for the priests who fulfill the duties of the Old Testament priesthood.