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It depends on the year model of the Jeep as to what you do. The following is stole...eh...borrowed from JP Magazine older cj / fsj up to 1979 with the spicer / Dana 18 or 20 can be towed with the t-case in neutral, transmission in gear. 76-79 cj / fsj with the quadra-trac CAN NOT be towed...

For a YJ, the information I've found says to put the t-case in neutral, and transmission in gear or on automatic transmissions, in park.

I hope this thread is not too old lol. I found it while doing a google search as my t-case has the exact shift pattern as the original poster. I'm trying to learn more about it as I plan to flat tow my Jeep and I'm looking for the proper way to do so.