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See that this is an old problem. Some of the knobs could crack on the backside and allow the knob to rotate on the shaft without turning the shaft at all. If the knob is okay then go underneath the vehicle and disconnect the electric plug on the shift solenoid and Inspect for corrosion on the terminals. There is a problem which can happen if an indicator light burns out in the electric shift models. The length of the shift solenoid plunger is what determines whether you are in 2 wheel or 4 wheel drive, or high or low range. If the indicator light burns out, it changes the electric power and position of the shift solenoid plunger.
There are a few things that would cause this problem. The first and most common would be the switch itself is bad. the next would be a bad 4wheel drive encoder motor, this is the motor on the transfer case that is used to operate the 4wheel drive. The last would be the 4 wheel drive module. You will need to do some testing, if the four wheel drive is working and goes in and out of 4 wheel drive then i would say it the switch. if it does not work correctly it may still be the switch or one of the components i listed above.I have enclosed a wiring diagram, you will need to do some testing to check system, first make sure all fuses are good. the fuses that operate the 4wd are listed on diagram, it will also tell you the location of each part. you will need to test front axle actuator and selector motor and switch, you will need a test light and a meter. hope this is helpful, good day.
There is a solenoid plunger that is screwed into front axle. Unscrew the plunger turn key on put into 4 wheel dive and verify that plunger is moving. If no movement you have to find out why. If moving, then front axle has a issue. Hope this helps.
There should be a lever shifter on the floor board with 2h- 4h-4L on the knob. Pull or push the lever to 4H then get out and go to the front axle. In the middle of the front tires there should be a locking front hub assembly, turn the selector to lock, do this on both wheels, your truck should now be in 4 wheel drive. To put it in 4L you need to havt the transmission in nuetral before you shift the lever. Once done playing make sure you unlock your front axel(hubs) and place the lever in 2H.
Ford has 2 types of 4x4 system engagement. One is a knob on the dash that you just turn to 4wheel drive high or low. The other system is the 4x4 transfer case shift on the transmission tunnel (hump) between the driver and passenger seats. To shift into 4 wheel drive high while driving, just let off the gas and shift transfer case into 4H position, and continue driving. To shift into 4 wheel drive Low, stop the vehicle completely, put transmission in neutral, shift transfer case into 4Low position, put trans. in gear, and start driving. I am assuming before doing the above, you have locked in ( turned the front hubs to 4 wheel drive position.) Any further questions, let me know.
the squeak could be brakes or wheel hub/bearing. most likely it is the bearing and hub assembly, i would not drive it , take it to you local service station and have then replace or repair the hub assy.