Have you gotten a service light? Sometimes these electronic things just freak out. It might be as simple as a new switch. There is a motor on the transfer case that is responsable for moving the levers in the case that use to be done by a lever from inside the truck. I think it may be possible to remove this motor and replace it with a lever. I would check into this by calling a local 4x4 shop, or a mechanic that specializes in 4x4 vehicles.
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My GMC Jimmy '01 would slip from 2-wheel to 4-wheel drive while I was driving. First time it happened my mechanic replaced a small part. This last time, he couldn't find anything wrong so he popped the 2-4 out and disconnected the 4-wheel drive. Now I don't have the problem.
I own a Jimmy and have done quite a bit of 4 wheel drive repair on it.
The first thing i would check is the 4x4 selector switch. I know for a fact that these will throw a service 4x4 code if they are unplugged or shorted. They sell for 50-60$ or you may find one at a local salvage yard for cheaper.
Taking this out and checking it only takes a few seconds, just simply pop the switch out of the dash with the edge of your pocket knife.
After you get it out theres a few more tabs surrounding the back plate, and this is where the circuit board is located. I would inspect it visually to make sure nothing looks corroded and also take a sniff of it to insure there isn't a burnt smell.
If it were the 4x4 actuator the lights would still illuminate on the selector switch, it just wouldn't engage the 4x4.
You'r problem is all electrical trust me .
If its a push button 4x4 take it to the shop its a VERY COMMON Problem dealing with the electric.Once you pay the $400 to get it fixed get rid of the truck and settle for a Jimmy/Blazer/Bravada with a floor shift 4x4..GM had problems with the push button 4x4.DONT DRIVE YOUR TRUCK IN THE MEANTIME.YOU WILL BLOW YOUR TRANSFER CASE RIGHT OUT OF IT!
i found the problem it was the acuator on the side of transfer case so i took it off and manualy put it in 2 wheel drive now all i have to do is get under there and turn it with a tire iron thanks but got it under control......