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While it might not be the same, this sounds erily like my kids 97 model. It had intermittent flashes and engagements of the front drive system. I removed the entire drive trian trying to figure it out and when I got the transfer case out and apart, I discovered that one of the speed sensors, the rear drive one, had worn through it's signal and power wires by pretting on the transfer case. It was grounding to the case, sending a false signal to the GEM module tell it to turn the 4wd on and sometimes the 4wd on in either the low range or high range. There are three leads. It is located just north of the drive shaft ujoint, one screw holds it in place. there is another one on the front side of the transfer case for the front drive shaft but it was ok. I snipped all three wires and put a double layer of shrink tubing for protection and spliced the wires back together. Now when the system is run, the light appears to be solid when switched.
Not saying this is the case, but could be something similar and it might be worth a crawl under to check out.
mayf, out in Pahrump
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