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SHift motor encoder (Commutator) is dirty and the TCCM is lost and doesnt know what gear the Tcase is in. Sometimes just screwing around with it in the driveway pushing 4Hi or 2wd will get a successful shift and position feedback while cleaning out the dirty spot but eventually it will keep coming back and eventually stay. The position sensor can be replaced on the encoder shift motor for the Tcase.My 2004 z71 Tahoe is driving fine but I noticed that the 4WD indicator only has Neutral light on. I tried selecting the 2hi and it just flashed.
When you start the vehicles, all the 4WD lights come on as usual.