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I have read a zillion posts on here about 4x4 not engaging. I have a '97 that i just bought, it will engage 4lo but not 4hi. The light comes on in 4hi and you can hear an audible click, but it stays in 2hi until you switch to 4lo. Because 4lo works that must rule out front axle problems, but where does that leave me?
Check all of your vacuum lines. I had the same problem. Changed two vacuum line harnesses and problem went away.
On my '02, the vacuum lines run through connectors (?) on the firewall behind the battery. Lines run under the battery seating plate. Make sure you check those. Also check where the vacuum line goes to the transfer case.
Not the best explanation, but i'm no mechanic, either.