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Diesel Addict
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my 2000 1/2 ton chevy did that for a very long time but i traded it for the 06 LBZ before i figured it out.
 

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There should be a fuse for the 4WD, try pulling it out for a couple of minutes and re-installing it. I know my 2001 half-ton had the switch go out on it, but I would get a service 4wd message and the lights wouldn't come on...it's worth a shot though. You might also want to crawl under and see if you have any shorted or broken wires to the encoder motor.
 

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most likely it is the push button control panel went bad,I had it happen on my 99 twice they are about 80 bucks
 
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