Honestly, I don't either. But you seemed to be concerned that there was a problem where you had circled. Unless the splines that go into the sleeve have completely stripped out, there's not. Unlikely at best, you know?

I'm wondering if perhaps the t-case might be in Neutral, instead of 2WD, 4WD-HI or 4WD-LOW. There is a Neutral between 4WD-HI and 4WD-LOW. Could the tcase have gotten bumped, banged, nudged, etc, into Neutral? Even without a ball on the shifter shaft (say that real fast 5 times! :D ), you should be able to shift into all the different 2WD/4WD settings. Try ensuring it's in the 2WD setting. Left and all the way up.

Just a thought. I get so few any more...
Pat☺

FWIW, I recently had a similar symptom failure in another manual transmission vehicle.

No power to the wheels, but the clutch pedal felt normal. With a wheel up off the ground and transmission in gear, I was unable to turn the wheel against the engine, but yet the engine couldn't move the vehicle forward. Letting up on the clutch pedal in gear, and I could only hear the faintest change in engine RPM, and some faint sounds from the transmissions.

The failure was a clutch disc. It'd been over-revved and came apart -- it was >30yo. Perhaps when you did your slow to a stop you maybe downshifted a bit early, but didn't release the clutch pedal. In that case it still spins the clutch cover (pressure plate) and the disc, just not the engine&flywheel. That's how mine got overspeeded.

Q1: Does the clutch pedal feel normal? Note that without all the clutch hydraulics, the system fails with the clutch *engaged*.

Q2: Put the transfer case in 2Hi and transmission in 5th. Lift a rear wheel off the ground. Can you turn the wheel at all? Is it harder to turn if you put the transmission in 1st? If so, it's the clutch disc failure.

Q3: As in Q2, does the raised rear wheel turn if the engine is running, but the vehicle won't move if it's on the ground? If so, it's the clutch disc failure.

With a disc failure, there's *some* coupling between the engine and transmission, but not much. Enough to spin a lifted wheel, but not enough to propel the vehicle.

On some vehicles you can inspect in where the starter installs to see if there's parts of the clutch disc laying in there (bad), but the disc can also fail by shearing the rivets, and then there's minimal debris.