94 GC limited 5.2 v8

Pleas need help... Not sure if this is trans case or tranmission problem. My transfer case lever is on the 4-hi but indicator panel indicated LO which i think its in 4-low. And when iam driving it the transmission only gave me up to 2nd gear and it won't go to higher gear even going into higher rpm. I check the fluid level and its ok, its only a little bit higher in the max level.

Also when i pull the transfer case lever to low 4 position it won't ingage, a cracking sound came whem iam putting it to drive or reverse.

Car have 166k mile on it.

Please advise. - thanks.