4w low problem
Lube up the shift linkage and make sure you get it all the way into 4 low.
If not you got transfer case problems by the sounds of it.
Here is what you do, pull the drain plug on the transfer case, catch the oil with a suitable catch pan, plastic kitty litter box will do fine, edwards coffee can too, but the oil will fill a 2 liter container. When the oil is draining, watch for chunks of metal coming out, if this is the case, allow all oil to drain out, the next question at this point is, are you willing to repair it or is 4H good enough? If 4H works and there is no problems there, you could get away for awhile, until finally the bearings pile up, or the seals get ripped by residual metal filings still in the case and all oil drains out and allows the bearings to pile up. You could take the chance, but my recommendation in that case would be to flush the transfer case with diesel fuel, add it to the case and take a cruise around the block, come back and drain it again before adding good ATF to the system. This may or may not do good for you, but it will get more of the filings out.
Your other option is to pull it and rebuild it with new gears, my guess is it isnt worth it, a used unit with good shaped internal would be the best choice.
If the oil is not contaminated, de-regard the above, and check the linkage, because you want to drain it after gears have been clashing around, there is no filter present in those transfer cases, if a chunk of gear cracked off it stays in there and gets crushed and then turns to small filings.






