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That snap ring goes on the end of the axel shaft. You may need to pull it out a hair. Check an exploded view picture or diagram if you have one or go online Its usually a bit of a pain to get that clip on. At least I have trouble 70% of the time I do them.

I'm having a small problem eith one of mine too. When I hit the brakes hard in 2wd it pops out of gear. I have to shift into 4 low to reengae it. I'm gonna get my spare rebuilt then swap it out. It seems that most people overlook checking the level and changing the fluid.