Firstly manuscipt 'rejected' and then status changed to 'revise' I submitted a paper and in the cover letter, I mentioned that the work is related to our previous publication (published in the same journal). After 25 days (for that time status was 'with editor') I received an email from Editor that I need to mention in "manuscript (and letter)" about the difference between the published manuscript and submitted manuscript. I wrote few lines in the manuscript and added some text in the cover letter (I did not prepare response letter as there was no option to upload it) explaining the difference. I submitted the manuscript again after one day of receiving the email from the editor. 

On the very next day, I received rejection email from Editor saying it was not made clear up to which extend this work was different from published one. I wrote a reply email to Editor saying that the submitted manuscript is much different from the earlier one (I wrote 6-7 lines email) and allow this manuscript to be judged by the reviewer. 

Here is the twist. The editor replied (within 2-3 hours). He said that the manuscript was reviewed by the reviewer and it was not found to be suitable to publish in present form.  However, he invited me to revise it if I could respond to the reviewer's comments. And the decision was changed from 'Reject' to 'Revise' and a new deadline was given to me.

Now what should I understand out of this ? Is it a good sign or editor is just passing time ? Can anybody guess the chances that the editor will see this without prejudice, becuase he earlier rejected this. Moreover, I am confused whether it will go to the new reviewers now. (I believe it was not gone to reviewer otherwise it would take at least a week to get the response)

And is it usual in peer review process ?

Thanks in advance for sharing your opinions and advice. 

Regards.
It is not really clear what happened. It sounds like the 25 days it was "with editor" it was actually out for review (possibly the editor does the review). It then sounds like the editor looked at the review(s) and decided the manuscript was not "new work". Instead of coming to a decision then, he ask you if the work was new. Your initial response did not convince him, so he rejected the work for not being new. He did not send the reviews, because the issue was the work was not new. You then convinced him the work was new, so he changed the status and gave you the review(s). 


  Is it a good sign or editor is just passing time ?


I can assure you that the editor is not just passing time. I think you have an uphill battle still to convince the editor and reviewer that the work is new. It also seems like you may not be as clear as you could be.

As for whether it goes out for review again, that depends on the editor.