i had the same issue with my 99 and it ended being the transfer case shift motor. it was completely burned out! it actually had a crack in it from salt corrosion that popped it open enough for sand and dirt to get in and jam the gears. it was about $200 and presto 4x4 was all good! BTW i tried the switch and chased all kinds of wires too with no luck, it was one of those things we were sure it was electrical, but never thought to look at the shift motor... good luck to you!