The vehicle is in 4wd -- check the rotary switch on the dash to make sure its not in 4HI or 4LO. Do not engage 4wd on dry pavement, this is one of the main reasons why transfer cases go bad, people just dont know when to apply 4wd.
If the rotary switch is in AUTO, as stated by b33p3rmcg, disconnect the electrical connectors on the transfer case.