This problem sucks, well I have 98 ranger with same problem but I think I may know what is wrong but as for us, we will just have to work this out I'm here to help.
I figured out that if you put it in 4x4 it engages all nice and everything but when I go to remove it from 4x4 it will sit their and click and if you let it sit and click about 3 to 4 maybe 5 times that is when the problem occurs and no 4x4 action at all and flashing lights but so far if you engage 4x4 with all noise down listen for clicking behind dash and just dont let it sit and click just try it and if it clicks more that 3 times put it back in 4 and try disengaging again till it dis engages before it clicks 3 to 4 times or so but I did try to replace it and it worked fine for day or too and then I had the same problem.
So I replaced the transfer case actuator and the problem is fixed. Here are the wiring diagrams and the encoder location #36 which I used to help me figure it out.
I hope this helps people, Cheers!
Images (Click to enlarge)
Tuesday, December 11th, 2007 AT 1:04 AM