To adjust the transfer case linkage you need to remove the shift bezel, pull the shift lever all the back to the rear gate, place a spacer of 3 mm (1/8") between the lever and the rear gate, anchor the lever in that position--a bungee cord usually works.
Crawl under the XJ. Loosen the locking bolt in the trunnion on the upper shift rod. Manually shift the transfer case into 4 lo. Make sure it is fully seated. Tighten the locking bolt in the trunnion. Remove the spacer and bungee cord, replace the bezel.
Congratulations, you have correctly adjusted the linkage. If the shift lever won't come all the back against the spacer and rear shift gate, then you must crawl under the XJ and loosen the locking bolt in the trunnion first.