yep looks like the flange on the axle is bent.
I'd try to find a used axle, maybe $100.00 or so.
Axle bearing, $20-25
Axle seal, $10-15
Rear diff gasket/ sealer $10
So around $200 or so in parts, plus a couple hours of labor.
97 Sahara, 74 Renegade, 72 CJ5, 55 Willy's (the Beast) Boss 302, 6:34 gearing, Bose 901 speakers.
God I miss that Jeep. Forgot the kinda Jeep, 80 SX4.