Messed with it some more at home, hard to tell, noise can be heard from oil pan also maybe. For sure it isnt coming from near the head gasket or anywhere up top and can be heard from the bell housing but the oil pan is pretty loud also not sure of that is normal?

 

Yeah that is normal. Think of the bottom of the block as a big iron bell. That is where the sound(except for rocker arm noise) congregates. The heavy iron mass and water jacket will soften any sound in the upper block. Your cam and lifters are in that open space above the oil pan! Listen carefully about about 4-5 below head gasket along the entire length of the block. Since you did not hear it at the seam things must not be too bad. That lower location will put you closer to the lifters.

 

I tried anywhere and everywhere I could reach on the passenger side of the block at and below the seam and it all sounds the same, I can hear the engine running but not the knocking noise.

 

Can you hear the knocking while driving? Piston slap can be heard as a hollow metallic knock under LIGHT acceleration right after a cold engine start and should go away in less than a minute and a half.
Rod noise and main bearing noises are also heard while driving a specific sequence or range.
The 4.0 is a noisy engine at idle and for unknown reasons some are worse than others. If you don't hear any noises in the cab I would not worry until you do.

 

No the engine sounds good when driving and I have no carpet so I can hear everything.

 

Sounds GOOD!

 

The FIRST think I think when I hear someone say they have a knocking noise is flex plate. Its a pretty common problem and one that, unless you know exactly what you're looking for, is hard to diagnose. I have had 2 buddies with knocking XJ's who took them to mechanics and couldn't get it figured out. Climb under, pop the plate, loose bolt, cracked plate.

Climb under, pull the inspection plate and have a look. Its really simple.