Judaism believes that every man has the ability to transcend his animal nature and live off to the Torah's demands. We do not accept that man is doomed to sin. We do, however, understand that there's something called the Evil Inclination, and every human being is subject to one temptation or another. Nobody is perfect, and we all slip up at one time or another. Not every sin involve desecrating God's name, but some common ones do.
The medieval scholar, Rabbi Eliezer of Metz, teaches that any time a person denigrates one of God's commandments, that is a desecration of God's Name. The great Chofetz Haim explains that one whose sins from a natural lust does not necessarily desecrate God's Name. Rather, one who habitually sins those transgressions that do not bring some physical gratification DO desecrate God's Name. That is because the people who see them do not attribute their misbehavior too out of control passions, but rather to a casual disregard of God's Word.
Therefore, says the Chofetz Haim, speaking ill of others is also a desecration of God's Name. Why? Because unlike eating non-kosher food, or having an illicit affair, the pleasure to the speaker slandering his fellow is minimal. Therefore, those who hear these injurious words see that the speaker does not take God's commandments very seriously, and thus they themselves will have less respect for the Torah. That is a desecration of God's Name.
I would expand that to any behavior which is hurtful to another. The victim of such abuse by a person who wears the mantle of Torah cannot be expected to increase their religious devotion as a result! A person who cheats another, slanders another, harasses another damages them twice. There is the damage of the act itself, and the damage of causing them to become distant from God. I believe that most people leave religion do so because of a failed interpersonal relationship. Someone who represented Judaism to them hurt them.
If that is the case, then the opposite must certainly be true. God's name may be sanctified by exemplary behavior. Imagine, for a moment, that you are sitting with friends discussing your neighbors. One of the people there strongly dislikes them, and begins to tell some highly critical things about them. You are tempted to join in, because they aren't your favorite people either.
Now imagine that you feel something in your stomach telling you to be careful with your words. Just as you are about to relate a really juicy piece of negative gossip about them, you catch yourself. You say to your friends, "You know, I think we should change the topic." What effect will that have on those who are listening? They will understand why you change the topic, and they will gain new respect for you. What's more, by seeing how important the laws of the Torah are to you, they will gain respect for the Torah and more desire to learn it and keep it.
Sanctification of God's Name was the hallmark of one of the darkest periods in Jewish history. When the Crusaders, in the year 1096, set forth to "redeem the holy land," they perpetrated a number of pogroms and massacres in the Jewish communities of the Rhine Valley first. In tragic scenes repeated throughout the period, Jews chose to take their own lives rather than give up their religion and accept the beliefs of the Crusaders. They chose to die rather than convert. They are called Kedoshim, holy ones, for they committed the ultimate act of sanctification of God's Name. Those who saw such devotion could not help but believe that only believers in a true religion would have the strength of character to make the ultimate sacrifice.
King David, in the Psalms, says, "I shall not die, rather I shall live and tell the deeds of God." My teacher, Rabbi Ahron Soloveitchik, of blessed memory, emphatically states that this versus telling us the best way to sanctify God's Name. Dying for God's Name is unbelievably holy, and we should be spared the need. But we can also, and even more so, achieve great holiness by living for God's Name. Making sure that everything we do oozes respect for Torah, and that everyone was only have contact leaves a bit elevated by that contact.
And so the path of life is clear. One must do all in one's power to avoid causing hurt or injury to a fellow human being. One must never slander or gossip, because by doing so one causes a desecration of God's Name. Instead, one must go out of one's way to live ethically, to be kind and loving to all people. In other words, realize that people look at you and see God, so you should act in a godly matter.