This is where we first started seeing Chrysler having some influence in the Cherokee. The Renix system went away and the inline-six got a head that flowed better, making it the "high output" motor which might be the most powerful inline-six of the bunch. The Dana 35 or optional Dana 44 rear axle were replaced with a 27-spline corporate 8.25 axle, which was about the same as the 35, but not as good as the optional 44.
The "skidplate" or "up-country"...
The "skidplate" or "up-country" package is one box that didn't get checked near often enough. Depending on the year, it got you this front differential skid, a belly skidplate, and a gas tank skid plate. Not all skids were available all years, and the differential skid shown is a bolt-on to all 17 years of Cherokee. Look for them in a junkyard near you.
Transmission options were the AX-15 and the AW4, both with 23-spline outputs, making it very easy to swap in other transfer cases, such as the Rubicon's NVG241OR, or an Advance Adapters Atlas II.
In 1995 the XJ got a driver's side air bag, and in 1996, OBD2 (On Board Diagnostics 2) made its debut. Many hated it at the time, and still hate in now. OBD2 monitors and controls more aspects of the engine than the previous generation did, which can make transmission swaps and blowers harder to get right. On the one hand, OBD2 will let you get away with less power adding before throwing the dreaded CEL light. On the other hand, if something goes wrong, it is easier to plug in a scan tool to retrieve the code and replace the widget that went bad. If you like having more control of your XJ, stick with a '95 and earlier model.
Sure, these are two-wheel-drive...
Sure, these are two-wheel-drive transmissions, but you can still easily see how the AX-15 (left) looks like Hercules compared to the Tinkerbell-like Peugot BA 10/5 (right). The Peugot can be easily identified (and then avoided) by looking for the case that has a left and right half bolted together. The 2WD XJs have the same front suspension, but with beam (aka tube) in place of where the front differential should be.
This era is typically referred to as the "Late Model" Cherokee because it is easily distinguished from the previous 13 years of the vehicle by the different look. The sharp angles were rounded off, the interior grew more ergonomic, and these generally command a higher buy-in price. Under the skin it isn't really all that much different. Essentially the same drivetrain that was dropped in the unitbody of the XJ in '87 remained, with more bells and whistles strapped to it.
These Jeeps ended up with the Dana 30 front axle with bigger 760x U-joints, and rear 8.25 axle with the bigger 29-spline axle shafts. The manual transmission-equipped units were more scarce in these years than in the earlier years and the AW4 got an extra output shaft sensor, which means earlier transmissions won't be a direct bolt-in.
There were up to three major wiring harness revisions in 1997. No matter who you talk to, everyone agrees that unless you are leaving it completely alone, you might want to avoid a '97. We've been in and out of most of these, and it's clear that it took Chrysler until late 1997 to figure out the wiring, make it neat, orderly, and uniform from one month to the next.
Once we get away from the '97s, there aren't too many pitfalls in the last four years of production; it is a matter of personal choice. The '98s were basically '97s with the wiring worked out; '99 saw the introduction of the equal-length intake in an effort to keep power numbers up after a head redesign; '00 was the first year for the coil-on-plug style ignition and the NV3550 became an option (a very rare option, at that), and by '01 the high-pinion front axle bowed out in favor of the low-pinion TJ front axle. Some people will tell you to stay away from the '99s because the heads crack, some will tell you stay away from the coil-on-plug ignitions because of misfire codes. Really, these last four years are good years and while there might be problems, they are associated with specific vehicles, not specific years.