I just installed a 3.5" lift. After test drive I have a grinding sound, coming from rear axle area when I release the throttle peddle, or costing down hill. As soon as I give it throttle, it will quit. please help

brakes? rear drive shaft?

thinkin drive shaft new drive shaft angle old u joints...just saying

you sir, are in need of a slip yoke eliminator, dual cardan driveshaft, and shim your rear axle.

You might be able to get away with a t-case drop for now. At the least it will minimize the "grinding" and vibrations you are experiencing.

I added rear shim to axle better but still have grinding on take off and costing are at throttle change.

I just installed a 4.5" lift and I have what I would call a chirping noise when I am coasting. Took it to the shop they greased the u-joints and it stopped for half a day. I do have a slip yoke eliminator installed but no shims.
So you might try greasing the crap out of the joints and see if that helps your situation.

A bad pinion bearing can cause that noise also. Had a couple 250 Super Duties come in with that problem.

ever find the issue?

On my 98 XJ with 4.5"lift and SYE installed had a noise coming from rear differential area. So I bought 4 degree shims from Iron Rock and after I installed them it really helped.

orderd T/Case drop. When it comes I will install to see if it helps.