AA @ Durrani90
Welcome to Punga :). Unimog 421 diff locking has been extensively discussed on this forum, in next few days I would try to dig down some helpful references. Here's the Summary:
BeeMog had similar problem, I tried everything, fresh oil, bleeding the cylinder, bleeding the diff to make sure new oil is through till the diff and there's no air in the system, all failed and I gave up. DeeDee, fixed the diffs on BeeMog, i) it was the cylinder which was not producing enough pressure to push the locks ii) Jammed Pistons.
First of all remove the rubber gear boot in order to have clear access to the Diff lock upper cylinder DeeDee fixed the problem by replacing the Diff locking cylinder (upper - attached to the lever as shown in the photo below) those were good days with access to lots of parts, and 2nd was by pushing some high pressure air in the system to release jammed piston. Once that was done then Oil was re-filled and bleed nipples on the diff were left open to remove air from the system.
Lever release is caused by the worn out lever lock, ideally hunt the used cylinder with lever, or try adding little bit of steel on the lock edge via gas weld so it should hold its position once engaged. 
I found some photos of the diff on this post:
www.pakwheels.com/forums/4x4-clubs-off-roaders-suv/87109-team-unimog-punga-project-102#post2777195