Sounds normal to me.
The tranny is attached to the transfer case, and power flows from the engine through the transmission and into the transfer case, which then distributes the power to the axles.
For your jeep to move, you have to have the transfer in one of the ranges:
*4L is low range, which is creepy crawl,
*2H is 2 wheel drive, or normal driving, where you're powering only the rear axle,
*4H is where you're powering both ends during driving on slippery conditions.
There is a "N", which is neutral, where no power is transferred out of the transfer case, so it'll just sit there and do nothing no matter what gear the transmission is in.
Am I way off base here or does this help clarify things?
This is the way a normal 4WD system works, is yours working differently? If it is and I have misunderstood, I apologize.
JEEPN
Winter Harbor, Maine
'81 CJ-8 Scrambled, It's a Jeep, Chevy, IHC kinda thing!
'88.5 Zuki, 7" Lift, Locked, Swamped, Rolled, and just generally broken in right!