Interesting. Why do the Lutherans consider then keeping the commandments of God as "works"? I mean, is it not God working in us that enables us to love others?
Great question. God is of course at work in believers cooperating with us in order to bring about good, loving works in us for the benefit of us. But since we are involved in those, they are human works- although they are also divine works. That's not a bad thing; in fact, it's a great thing, since it allows us to be involved in God's work to renew his creation. But they are also commands that order us to behave according to his plan for our lives, and don't merit anything for us. But Lutherans, again, believe that's a good thing, because when we're not working for some sort of reward, our works are more genuinely focused on the good of our neighbor, whom he ought to love.
Contrast this with our views of the sacraments, which are God's works exclusively. Yes, the bread and wine in communion are products of human material culture, and yes, water is part of God's creation, but the direct actor in the sacraments is God. In a good, ethical, loving action on the part of a Christian on behalf of his/her fellow human being,
we are the direct actor, however much God is there behind us, enabling us in the Spirit and filling us with Christ's love. In the sacraments, the human recipient- the person being baptized or the person receiving communion- is a completely passive vessel. There's a pastor there usually administering the sacrament, and in that sense a sacrament is a good work of cooperation between humans and God; but for the recipient, who is the primary subject in the sacramental act, there is no human action whatsoever. It is God alone, and God coming with grace upon grace.
What other means of grace did God give for babies and mentally-handicapped people?
Holy communion is a big one for the life of Christians. Granted, most Lutherans, like most Christians in the western tradition, don't believe infants should receive communion (though I do), but baptism and communion together form the pillars of the Christian life. They're absolutely central to our identity as individuals and as a community, and infants and the mentally-handicapped can fully participate in that. That same is true of holy absolution, which is the formal proclamation of the forgiveness of sins which, like other sacraments, is dependent solely on God's grace and not human activity. It is something unilateral that God alone does through the mouth of the pastor or fellow Christian.