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There are 2 models here the push button will flash if the system is not engaging or disengaging properly . If front drive shaft is turning. That is with car raised and supported . if front drive axles do not turn then the axle actuator is not engaging axle shaft passenger side. Remove actuator and manually engage shifting collar with a screwdriver still does not turn then inner axle is twisted.
If you have a square box mounted to the right front axle tube, make sure the vacuum lines are attached to it and that it's working. If it's OK, then you have likely either have a broken differential gear set, broken outer axle joint or axle itself. I'd bet on the vacuum hose though. They did away with that unit in later jeeps because it was always getting disconnected.
Is it a an 85 or a95? I know of two switches on these vehicles, one is a four port vacuum switch on the top of the transfer case, you must unplug the vacuum line, and unscrew it from the transfer case. The other is on the front axle. The one on the transfer case is rather difficult to reach, it is hex shaped for a wrench. Unsure of size, it is large though. The one on the front axle is part of the axle shift motor, is unplugged and removed for replacement. I believe the one on the axle only serves to turn on the 4x4 indicator light.
Make sure you have plenty of 90 wt. in the front axle. I've got an '86 Cherokee Laredo. It doesn't kick right in to gear. You need to be moving, but not to fast. Sometimes reversing, then back into drive works.
When you disengage it, if you are moving at or above 30 mph, you'll hjear a rapid clicking from the front axle as it tries to let go. Put it in neutral for a second or two. That will take enough strain off the drive train to allow it to disengage.
i'll bet this is a front wheel drive or four wheel drive. when the front wheels are tied to the drive train. the front axle shafts bearings can go kaput. jack up the vehicle and turn the steering wheel all the way to one side and spin one tire at a time by hand. you are bound to hear snaping and cracking coming from the axle shafts.
the sensor in the front axle may be cracked or damaged. follow the wires to it make shure there are no gouges in them or the they are not cut. there is a portion in the axle that will unscrew(where the wires hook up) remove it and inspect it,
Our Jeep Wrangler YJ's are equipped with a vacuum module on the front axle. It is used to engage the front axle when the transfercase is shifted into 4WD. Check the vacuum lines on the front axle to make sure they are connected. The passenger side axle shaft has a disconnect sleeve that is moved left and right by the vacuum.