The system is a remarkable system and there has been various troubleshooting threads on blogs and forums all over the world. Some of which I put together but I realised that troubleshooters lacked one thing - the troubleshooter did not understand how the system works so I have put the system out below.
Before we go into the detail I will explain the system in a nutshell.
When the transfer lever is moved, a sensor in the gearbox picks this up and relays the message to 4x4 ecu. The 4x4 ecu then sends the signal to vacuum solenoids who, in turn, sends the vacuum to the front diff actuator (to engage the front diff to the right front side shaft). The transfer case mechanism is completely mechanically operated by the transfer lever in the Gen2 models. In Gen3 and later models with the electric 4x4 control, the 4x4 ecu also sends the signal to actuators in the gearbox to engage the necessary mechanical linkages.
This is a broad location finder picture of the front diff. It should look almost identical through all the different years and generations of pajeros and colt pickups.
When the car is in "2H", this shafts (that is usually hidden under this boot) is pulled in towards the diff (towards the right in the photo). When in anything other than "2H " the shaft is pulled outward from the diff (towards the left in the picture)
The actuation of the shaft is done by vacuum. If you look to the left (as if standing in front of the car) of the boot that covers the actuator shaft on the front diff, you will see a diaphragm with two vacuum hoses attached to it.
When the vehicle is in 2H the vacuum pipe that exits towards the rear of the vehicle should be pulling vacuum and when the car is NOT in 2H the other vacuum pipe should be pulling vacuum.
When the car is in 2H there should be 12v fed to BOTH solenoids. Make sure the block off caps are venting freely. If they are blocked the system will be slow or won't work at all. They have to be able to vent in order to vent off the vacuum in the actuator diaphragm on the one side when the other side wants to engage and vice versa.
In the case of a flashing center diff light only (all green lights off and only the center diff light is flashing - going to 4H makes no difference to the lights) after driving for about 20-25km it is usually the one solenoid sending vacuum to the actuator in 2H or the vacuum pipes thereof being old and collapsing on itself because of the vacuum and allowing the actuator to release after a while.
Mostly the flashing center amber light after a few kilometers can be cured by renewing the vacuum solenoids by the airbox, the vacuum pipes and possibly the actuator if the diaphragm might have a leak.