WOW! I didn’t know that they put the Select Trac (NP 242) in anything other than the 4.0L XJs. Shifting into 4x4 is pretty easy; just pull back on the handle until you are either in “Full Time” or “Part Time” 4-wheel drive. According to my manual you can shift into or out of 4 wheel drive at any legal speed, but I prefer to be stopped when I do it. In order to shift into 4 Lo the manual says you must be going 3 mph or slower, put the shift lever in neutral, push the handle to the right and then continue on down to 4 Lo. Once again I prefer to do this while I’m stopped. The indicator lights on the dash come on when the vehicle is actually engaged in 4x4, not when you pull the shift lever. The lights are frequently sources of frustration and rarely work correctly, I wouldn’t worry too much about them. If it doesn’t feel like its engaging 4x4 give it a little gas and let off the pedal right quick, that usually does the trick. Same goes for shifting out of 4x4. BTW “Full Time” can be driven on the pavement year round. “Part Time” and “4 Lo” are for low traction situations only (dirt, snow, wet, etc) and may cause drive train damage if used on dry pavement.
Sorry, when you said you had a Select Trac I assumed it was a NP 242. I just realized that you have an ’86 so it must be a NP228 or 229. Disregard the above instructions; they don’t apply to your transfer case.