I have a 99 explorer-basically the same drivetrain. there is an electric motor on the transfer case that engages the four wheel drive. it you can hear the motor engaging; which you should as they are noisey, then your problem is in the transfer case. if so, like it was with mine; the fork inside the transfer case broke. Forty dollar part, and an afternoon pulling the transfer case, swapping forks, and intalling it. all in all not a bad job.
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