I have a 99 suburban, and it was slipping and grinding in drive, in 2wd. In 4wd, it will only engage if I reverse first, than pull forward. With the trucks rearend jacked up in the air, the wheels turn freely, with the only noise seeming to come from the brake drums. Also, when it was in the air, the drive shaft doesn't turn, but when the truck is on the ground, it will roll as if it is in neutral. I haven't opened the differential yet, so I haven't ruled that out, but am wondering if it might have something to do with the transfer case, as it seems to **** when I accelerate from a stop, rather than take off smoothly.
It very well could be in your transfer case, I would take it to a dealer and let them check it it is not something you want to tackle if you dont know a lot about them.
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