Imām Ibn Rajab (d. 795 AH) said:

As for the saying of the Prophet (صلى الله عليه وسلم) which formed part of what he narrated from his Lord: “All of you are misguided except those who I choose to guide,”¹ there are those who surmise that it contradicts the ḥadīth of ʿIyāḍ ibn Ḥimār who narrated that the Prophet (صلى الله عليه وسلم) said: “Allāh says: I have created my slaves in a state of Ḥanīf [i.e., leaning away from shirk and towards my Oneness]”² and in another narration: “I created my slaves as Muslims until Shayṭān turned them away from it.”³

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In actuality, there is no contradiction. For Allāh has created his slaves and instilled in them a natural disposition towards acceptance of Islām, leaning towards it in spite of all other ways.

Such that they find themselves ready for it, strongly prepared for its adoption. However, a servant of Allāh must couple this with actual Islamic learning, for prior to his seeking this knowledge he is considered ignorant; unacquainted with individual matters related to it. As the Most Exalted in Might said:

وَاللَّهُ أَخْرَجَكُم مِّن بُطُونِ أُمَّهَاتِكُمْ لَا تَعْلَمُونَ شَيْئًا

“And Allāh has brought you out from the wombs of your mothers while you know nothing.”
(Naḥl, 16:78)

And He said to His Prophet (صلى الله عليه وسلم):

وَوَجَدَكَ ضَالًّا فَهَدَىٰ

“And He found you unaware (of the Qurʾān, its legal laws, and Prophethood, etc.) and guided you?”
(al-Ḍuḥá, 93:7)

Its meaning is that: we found you in a state wherein you were not knowledgeable of the Book of Allāh or the Sunnah [prophetic example that was then set forth] as the Most High said:

وَكَذَٰلِكَ أَوْحَيْنَا إِلَيْكَ رُوحًا مِّنْ أَمْرِنَا ۚ مَا كُنتَ تَدْرِي مَا الْكِتَابُ وَلَا الْإِيمَانُ وَلَٰكِن جَعَلْنَاهُ نُورًا نَّهْدِي بِهِ مَن نَّشَاءُ مِنْ عِبَادِنَا ۚ

“And thus We have sent to you (O Muḥammad (صلى الله عليه وسلم)) Rūḥan (an Inspiration, and a Mercy) of Our Command. You knew not what is the Book, nor what is Faith? But We have made it (this Qurʾān) a light wherewith We guide whosoever of Our slaves We will.”
(al-Shūrá, 42:52)

Thus, man is born with a natural disposition towards acceptance of the truth. If Allāh chooses to guide him, He does so by means of one who teaches him that guidance. He then becomes guided in reality and practice, after possessing before it strength that would facilitate his attainment of that guidance. If Allāh chooses to abandon him, he allows him to be subjected to one who teaches him that which alters his natural disposition, as he (صلى الله عليه وسلم) said: “Every newborn is delivered in a state of fiṭrah [natural disposition towards acceptance of Islām]. Then, his parents are the ones who turn him towards Christianity, or Judaism, or the path of the Majūs (fire worshippers).”

Endnotes: 

[1] Authentic: narrated by Muslim 4:1994.
[2] Authentic: narrated by Muslim: 2865.
[3] See previous footnote.

Source: Jāmiʿ al-ʿUlūm 3: 662-663
Translated by: Riyāḍ al-Kanadī