Ok. Deep breath here. Your Limited model has Toyota's Multi-Mode transfer case, which allows H2, All-Time 4WD, Traditional H4 (H4L on your knob) and L4 (L4L on your knob). I am looking at the diagnostic from my Toyota 4Runner Factory Service Manual.
1. You can not engage Multi-Mode 4x4 when tires are spinning on ice or snow. It needs forward/reverse motion to engage, and no speed means the speed sensors won't let it. so trying to get it to engage on an ice covered parking lot won't do the trick.
Now, troubleshooting. This is from the book.
1. Start engine, and push the (4WD) button, as if to engage H4. Watch the dash display.
IF the display does not light up even though the switch has been pushed, move vehicle back and forth. IF switching is not completed after three seconds, the display will flash.
You have told us that the display flashes repeatedly. So after trying the above instructions, let's move on.
1. Start engine.
2. Shift into H4L or L4L. Do not push the 4WD button, just shift into either mode.
3. Check to see if dash display illuminates to indicate 4WD is engaged (all 4 wheels lit) and center differential is locked (orange center light). Vehicle may need moved forward or backward.
HINT: Perform inspection with vehicle on, and Automatic Shift Lever in the "N" position prior to moving the vehicle
If switching is not completed within 3 seconds, the lights will flash.
At this point, the manual calls for a series of electrical tests to rule out electrical problems.
However
If I were you, I would simply push the 4WD button, and go for a good drive. Various speeds, road types, etc. Just to get the vehicle moving and see if the system eventually kicks in. Many times the Multi-Mode in these trucks goes dormant without use. So driving with the button pushed in, and the lights flashing has led to eventually the actuator kicking in after 30 miles or so.
However
That may not work best for you. Here are a few threads that might also help out.
http://www.toyota-4runner.org/3rd-gen-t4rs/149099-4wd-not-engaging.html
This is lengthy, but very informative and will help you out in troubleshooting.
4WD won't disengage on 99 4Runner LTD - YotaTech Forums
Good Luck!