The one connection I can see between brit mila and Israel comes from Bereishit 17:8-11 which shows the possession of the Land of Israel depends on circumcision.
I assign the land you sojourn in to you and your offspring to come,
all the land of Canaan, as an everlasting holding. I will be their
God. God further said to Abraham, As for you, you and your offspring
to come throughout the ages shall keep My covenant. Such shall be the
covenant between Me and you and your offspring to follow which you
shall keep: every male among you shall be circumcised. You shall
circumcise the flesh of your foreskin, and that shall be the sign of
the covenant between Me and you.
So two possible explanations I can propose for this custom
- either one wishes to acknowledge/demonstrate/strengthen the connection between orla and Eretz Israel by burying the first in sand from the second
- or (based on Rashi on 17:8 quoting Ketubot 110b: "whoever resides outside of Israel is as if he has no God") one wishes to compensate for the fact that the baby is outside of Israel by showing attachment to the Land of Israel by burying the orla in sand from Eretz Israel