What transfer case? If you have the NP242 you likely have a transfer case problem. If you have an NP231 then you likely have a vacuum issue with the vacuum disconnect on the front axle.
If you have the vacuum disconnect axle and NP231 transfer case here are some things to check:
Is the vacuum reservoir (OEM behind front bumper, passenger's side) intact and is the vacuum line(s) attached?
Is the vacuum supply line broken around the battery?
Is the vacuum line to the transfer case switch intact?
When you engage 4x4 does the transfer case switch pass vacuum to one of the ports?
When you disengage 4x4 does the transfer case switch pass vacuum to the other port?
Do you have vacuum from the transfer case switch to the vacuum motor on the front axle?
There are three vacuum ports on the axle vacuum motor. Engage, disengage, 4x4 light. When vacuum is applied to the outermost port the axle shift fork moves the engagement collar outward on the axle, disengaging the two piece axle and disengaging 4x4. When vacuum is applied to the middle port the axle shift fork moves the engagement collar and the two pieces of the axle are connected, allowing 4x4. The third or innermost port gets vacuum when the axle is engaged and that vacuum travels up a vacuum line to a vacuum/electrical switch on the passenger's side firewall. This switch, when vacuum is applied, is what lights up the 4x4 light in the instrument panel.