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Number 3 is the 3rd plug back on the passenger side. Coils are notorious for going bad, I would recommend replacing the spark plugs, while you are there. Use Auto Lite, or Motorcraft Platinum Spark plugs only.
I found a lower gear case assembly diagram at http://www.crowleymarine.com/mercury_parts/6995/240.cfm which helped me understand how the shift mechanism works. This clued me in to the fact that I was missing the cam follower rod which I then found I had inadvertently mopped up in a shop towel when cleaning up spilled gear oil. After that discovery, assembly and operation was quick and successful.
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