Sounds like it came loose somewhere on the linkage. My old '99 did this when I tried to force it a little to hard. Look underneath the Jeep up towards the transfer case on the drivers side. You should see the linkage rod system that connects the lever to the actual transfer case. Something is probably loose there.
My 99 ended up being a pivot point for the linkage being disconnected. There was a round pin maybe an inch long that went through a hole and acted as a pivot. This pin came out of the hole. Was a simple fix on mine. Might also help whle your down there looking around to have a helper slowly move the 4wd lever forward and backward. This will help determine where your disconnect is.