Your '96 Subaru must have an automatic transmission. I have a similar car, and had the same problem. My independent Subaru mechanic tells me that inserting a fuse will eliminate the binding problem temporarily, but it's not a permanent solution.
Eventually you will have to replace the transfer valve and clutch pack in the rear of the transmission. It's about a $700 job (at least that's what it cost me), but after that the AWD system works as it should, and what's the point of driving a Subaru these days if it's not AWD?
I suggest you stop fooling around and fix the car.