4 The One enthroned in heaven laughs;
the Lord scoffs at them.
5 He rebukes them in his anger
and terrifies them in his wrath, saying,
6 “I have installed my king
on Zion, my holy mountain.”
In these verses the setting changes from the earth and its rulers to "the One enthroned in heaven". They give God's response to the mocking of the rulers and the nations who plot and speak against the LORD and his anointed. His response is the opposite of fear and concern. He "laughs". He "scoffs at them". He "rebukes" them and "terrifies" them. God is not concerned with their conspiring, plotting and threatening words.
This scene paints a picture of God's ultimate control and power over his rebellious creation. God is not intimidated and scared by the evil in this world. He is still enthroned in heaven.
God's anger and wrath can be difficult concepts for us to grasp alongside his love and mercy. Yet, we see these aspects of God pup up all throughout the Scripture. So we must reconcile them in our theological constructs about God. Below I've linked you to some verses and articles that you can dive a little deeper.
In response to the statements of the rebellious kings and rulers in v. 3 God declares, "I have installed my king on Zion, my holy mountain." Note the possessives. The kingdom of Israel and the king as the ruler and authority over Israel is part of God's response to the evil and corruption of the world which is in rebellion against him. Israel, in this era of redemption history, was meant to be God's agents for carrying out his wrath on occasion and representing how humanity ought to live under God's law—living as God's people, in his place, under his authority. Now, Israel never did this perfectly, but that was always the intent. Today, in the new covenant era in which we live, the church is to be the representatives of the idilic conditions in which God's kingdom reigns. Not as a nation-state, hence the lack of imperatives in the NT for the church to carry out God's wrath, but as a community of people living under God's rule, defeating evil through the power given us by Jesus' work on the cross and the indwelling of the Holy Spirit.