Did you check fuse #23?

The Vehicle Does Not Shift Between A4WD and 4WD Modes Properly
4WD mode switch.
Circuitry.
CJB Fuse 23 (10A).
A4WD clutch relay/circuit.
Contact plate sensors A, B, C and D circuits.
Transfer case shift motor/circuit.
Transfer case shift relays.
Transfer case mechanism.
GEM.
GO to Pinpoint Test B .

Here's more info for you;

Principles of Operation

The automatic 4-wheel drive A4WD system is a full time 4-wheel drive system with an electronic shift 4x4 system that allows the operator to choose between three different 4x4 modes. The operator can switch between A4WD, and 4WD high mode at any speed, and 4WD low mode. To engage or disengage low range, the vehicle speed must be less than 5 kph (3 mph) , the brake depressed, and the transmission must be in NEUTRAL.

In A4WD, the generic electronic module (GEM) varies the torque split between front and rear drivelines by controlling the transfer case clutch. The transfer case clutch allows for slight speed differences between the front and rear driveshafts which normally occurs when negotiating a corner on dry pavement. When the rear wheels are overpowered, the GEM detects this slip condition, and the duty cycle to the transfer case clutch is increased until the speed difference between driveshafts is reduced.

The 4WD mode switch is a rotary switch which allows the vehicle operator to choose between A4WD, 4WD high, and low range positions. There is no A4WD lamp, and the 4x4 lamp is controlled by the GEM and tells the owner that the vehicle is in 4x4 high mode. The LOW RANGE lamp is controlled by the PCM.

The vehicle speed signal is hardwired between the powertrain control module (PCM) and the GEM, speed control, overhead message center, air suspension, and EVO steering. The instrument cluster also receives the speed signal, but receives it over the standard corporate protocol (SCP) communication network. The PCM determines vehicle speed from the output shaft speed (OSS) sensor which is hardwired directly to the PCM.

The Hall effect sensors are mounted to the transfer case and are used to determine the speed of the front and rear driveshafts.

The shift motor sense plate, an integral part of the electric shift motor, is used to inform the GEM what mode the transfer case is actually in.

The digital transmission range (DTR) sensor, located on the left side of the transmission, informs the GEM of the transmission gear position.

The 4x4 shift motor relay is a module containing two relays which, under the control of the GEM, shift the transfer case shift motor between the three 4WD modes.

The torque on demand (TOD) relay is used to activate the A4WD clutch within the transfer case by the GEM. This relay controls the torque split between the front and rear axles.

The throttle position signal is hardwired from the PCM to the GEM. The GEM uses the throttle position to anticipate a rear wheel slip condition when the vehicle is in A4WD.