On all the early YJ's they had a vaccuum actuated shift fork on the front axle asm. This would allow for better fuel economy when in 2wd by disconnecting the right hand axle from the differential and not spinning the front driveshaft when driving. When 4wd is engaged a vaccuum switch on the dash and t-case send vaccuum from the motor to the actuator on the front axle and engages the front diff with an internal shift fork. If this does not happen the 4x4 light will light on the dash but the front wheels will remain disconnected from the system, thus no 4x4. There is a company making a manual engagement cable system for these that replaces the vaccuum system and alot of online and local 4x4 stores sell them with good reviews.
Here is a link to a system sold at http://www.4wd.com/productdetails.aspx?partID=9139
www.4wd.com
www.quadratec.com
If you check the vaccuum lines with soapy water (DISH SOAP) in a spray bottle with the engine running, you more than likely can repair the system yourself at home. Due to the age of your Jeep you could use a few new sections of vaccuum line as it gets brittle and cracks with heat and age. Pep Boys, Checker, and Autozone have the line in bulk for cheap. This is a more cost friendly repair. Check this out, hope this helps.......