Usually 2 inches is about as I as you can go and still be somewhat safe

 

I have like 2-3" of lift from my shackles, but I think they're too long. The arc that the shackle travels on and the arc the leaf travels on don't work very well together.

 

I think I'm going to go with 3.5 inch leafs and 2 inch shackles.

 

That's fine. Then if you want to get shackle relocators in the future you can drop the shackle to 1" if you get an extended shackle with two mounts like RC has.

 

Is there 1-2 inch shackles?

 

Rough country makes them

 

ClaytonOffraod makes a 3-way adjustable in 1/4" steel, 1.5" 2" 2.5". Also has an oversize rubber bushing (pic).
Also this; http://www.seriousoffroadproducts.co...Shackle-RE2705
And this; http://www.seriousoffroadproducts.co...-REAR-5-RE2700

Stay away from these; http://www.ebay.com/itm/84-01-Jeep-Cherokee-XJ-1-5-2-Adjustable-Rear-Shackle-Lift-Kit-/261313946709?pt=Motors_Car_Truck_Parts_Accessories&fits=Model%3ACherokee&hash=item3cd7866455&vxp=mtr

 

Is there a down side to shackles? What are they

 

What are the cons to shackles? Do they mess anything up?

 

No real cons with a quality shackle that provides less than 2" of lift. What they do change slightly is the pinion angle, usually not an issue but should be considered.
When installing leaf springs that lift a rig, extended shackles are necessary to get the full movement of springs.
I prefer rubber bushings but most aftermarket shackles are poly (except Clayton).

 

Here is a shackle that was too long and too cheap..

 

Comparison picture.

 

What size shocks should I be using right now with what is on it?

 

Just measure, check what you need to have at ride height with the amount of up travel you want.