You posted a similar question in the 4Runner Forum and the response was to have a look at the tech sections offered here in the header at the top of the page.

If you are not getting 4 wheel drive, swapping to manual hubs will not help on a 2nd generation 4Runner. They are locked all the time and the advantage of the manual hubs is the ability to unlock them for highway travel in good weather. You have another issue that you need to check out. I am no expert on this but there is an electrical or vacuum operated doodad on the front end that will lock the axle into 4 wheel drive when you operate the shifter inside the truck. Right now, it is not doing what it is supposed to do and that is why you are not getting 4 wheel drive.

However, let me suggest you figure out what is happening with your engine first. A knock is not a good thing so you need to find out why before you have a ventilated block and have to find yourself a replacement engine.

Randy