Truck stuck in neutral after 4x4 is engaged (97 1500 5.7l)

[Clay Smith]

I have the electronic push button 4x4. Any time I press the button to engage 4wd the transfer case goes into neutral and stays there, leaving me stranded. If you try and change gears it makes grinding sound.
Usually, I stand around and reset the battery a few times (truck wont start in neutral) and sometimes push the truck (if I can) to try and get it in gear, and eventually I'll hear the tcase click and then 4wd works. It seems there's no consistent way of fixing it, everytime it's fixed it just randomly popped in.
I pulled another actuator from the junkyard that im going to test but based on my research I don't think that's the issue. Does anyone have any ideas here as to what's going on? The lights on the 4x4 work but they dont light up when the truck is stuck in neutral after pressing the 4x4 button

 

[Schurkey]

"Encoder motor" or bent shift forks, I suppose. When I had problems getting the transfer case to shift on my Trailblazer, the shop told me that they pulled the Encoder motor, but still couldn't get it to shift manually. Shift mechanism was screwed-up. Two GM re-manufactured transfer cases later, works like a dream. First reman indicated 4WD, but wouldn't actually transfer power to the front wheels.