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Although the selector knob circuit is less complicated that the push button selector, the problems are similar.
Both set ups use a shift motor to shift the transfer case. The shift motor is prone to failure and that sounds like what has happened.
Your owner's manual doesn't have any specifics on how to troubleshoot the motor, but it will have a listing of all the fuses involved. I suggest checking all the fuses first. This will help to narrow down where the problem is. It isn't unusual for the selector switch itself to fail and that should be checked as well.
You can pick up an EVTM from helminc.com and that will help you troubleshoot further.
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