The concept of separation in the Torah is clearly in order to connect with Hashem and not just a preventive measure against assimilation.
We see the Torah uses this concept of separation not only for separation from Gentiles, but also in the Bais Hamikdash when separating Kohanim from Yisroelim etc. The Kohanim had to be separated in designated areas in order for them to become ‘Kosher’ for worship.
Additionally, we recite every Motzei Shabbos “Hamavdil bein Kodesh L’chol, Bain Yisroel L’amim”, meaning that the same way for “Kodesh/holiness” to rest/dwell on a given place/day there must precede a designated separation for it; so too God ‘separated’ Israel from Gentiles in order for them to become holy through connection with Him.