Here is the basic history of the 2.5L and the AMC sixes.
The 2.5L (the old OHV valve engine used through 2002-ish) is basically a 4 cylinder relative of the 4.0L. They share costs by using similar machining operations, and many common parts (such as valvetrain components and internal engine parts that have nothing to do with length). The bore is the same as the 4.0L but the 2.5L has a slightly shorter stroke when compared with it's bigger (younger) brother. I'm going to venture a guess that the shorter stroke was probably done to reduce NVH. Largish 4 cylinder engines (without balance shafts) are not known for their smoothness and I would imagine the longer stroke exacerbated the issue at the higher RPM's this engine needs to run at to make power and keep up at highway speeds.
As a matter of fact, the 2.5L technically pre-dates the 4.0L. It was originally based on the 4.2L (but got a new large bore block and a new cylinder head with many flow improvements) and launched in the early to mid 1980's if memory serves. It was the 4.0L that picked up on the 2.5L's 3.88" bore (an increase over the 4.2L's 3.75" bore) and was given it's own stroke (3.41") that was a compromise between the 2.5L's short stroke (3.19") & the longish stroke (3.90") of the 4.2L, probably to improve high speed smoothness and control emissions (long-stroke engines are notoriously difficult to clean up from an emissions perspective). Ironically, the 4.0L's stroke is fairly close to the original Rambler 232 cid I-6 (3.50" stroke) that the entire family of AMC sixes and fours owe their design to.
Both the 2.5L and 4.0L engines share some of the same "warts" such as the ever popular rear-main seal leak, but by the same token they have the same strengths. They are both robust, simple to repair, cheap to operate over the long haul (not just talking fuel econ here) and capable of providing long service easily in excess of 200K if maintained properly. The 2.5L did start off a little rough though - early engines from the '80's suffered from really excessive piston slap (small harmless amounts of piston slap have always been an issue with this engine family), so bad in fact that the "slap" was quite loud and could ultimately lead to piston/rod failure. I knew some personal friends with a first year XJ 2.5L that had such excessive piston slap that a piston collapsed a skirt, ****ed in the cylinder and snapped the rod in two. Apparently this wasn't a terribly uncommon occurence back in the beginning and many Dealers made quite a bit of money replacing short blocks in early 2.5L powered XJ's and other AMC products.
To be honest with you, were I to own a 4 cyl Jeep, I'd rather have the old 2.5L like yours than the newer 2.4L, even though the 2.4L has a slight power advantage. The 2.4L has some issues with head gasket sealing and is just a needlessly complex design for a simple vehicle like a Wrangler - I just can't see them lasting as long overall as the old 2.5L. I hear a lot of folks on here with 2.5L's that have several hundred thousand miles on them, but I don't recall any similar claims from 2.4L owners, but perhaps they're too new yet to make a judgement.
I also like my 4.0L enough (from a design perspective) that I have absolutely no interest in a Hemi swap or some other V-8 swap that some folks are pining for. I'd sooner put a 4.2L crank in my 4.0L and build up a stroker than go through the hassles of a V-8 install. With the possible exception of a small-block Chevy, I can't think of an available V-8 that has the potential to provide as much trouble-free service as the 4.0L can.
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Here's some more 2.5L history from:
AMC-Jeep 2.5 liter four-cylinder engine
The Jeep 150 cubic inch four-cylinder engine was introduced by AMC in 1982, for the 1983 model year. The engine used a carburetor until given throttle-body fuel injection in 1986 (except in the Wrangler, which switched in 1987); in 1991 it switched to multiple-port fuel injection, and in 1993 moved to sequential multiple-port fuel injection. The major change over the years has been the different fuel delivery methods, though minor changes and refinements were made as well.
The I4 uses overhead valves with hydraulic lifters and a cast iron head and block. It is said to be a 258 ci AMC straight-six with two cylinders lopped off, bored to 3.88", and de-stroked to 3.19". The head's chamber and port design were later used with the perennial favorite Jeep engine, the 4.0L Straight-6.
While clearly superior in power to the Plymouth-Dodge 2.5 liter engine, which produced at most 100 hp and 135 lb-ft of torque, the AMC engine co-existed with its corporate sibling; it did not even make it into the Dodge Dakota until 1996, when it replaced the 2.5 liter four-cylinder (a stroked 2.2 liter engine) which was no longer cost-effective to manufacture, since the cars that used it had been discontinued. The 2.5 would eventually be replaced by the corporate 2.4 liter engine (producing only a little more power). The Dakota dropped its four-cylinder option entirely.
W. Paul Tippett, president of AMC, was quoted by the New York Times as saying that it had made sense to buy four-cylinder engines from GM at first, because demand was low, but with the public using more of the engines, it made more sense to develop and build their own. The popularity of GM's new four-cylinder cars may well have made supplies questionable as well.
While some believe there were no cars made with this engine, a very small number of early Eagle Premiers - modified Renault Medallions - were built with the 2.5 in 1988 and possibly 1989. However, most found their way into the CJ7/Wrangler, AMC Eagle, Cherokee, Comanche, and Dakota.
In 1997, the Dakota's 2.5 liter adopted a "quarter-wave" tuning chamber in the intake duct and a Helmholtz resonator mounted atop the throttle body to reduce induction noise and provide a pleasant sound. (Click for details.)
The 2.5, as used by AMC, used a General Motors bellhousing pattern, instead of the AMC bolt pattern, because it was a replacement for the Pontiac "Iron Duke" four-cylinder purchased by AMC while they adapted their straight-six into a four-cylinder.
In 1997, the engine was noted as having flat followers and hydraulic lifters. The redline came at 5,550 rpm. Fuel was standard 87-octane unleaded. Oil capacity was 4.0 quarts, coolant 9.0 quarts; emission controls included three-way catalyst and dual heated oxygen sensors. Gas mileage in the Wrangler was 19/21 manual, 17/19 automatic.
Bore x Stroke 3.88" x 3.19"
Displacement 150.4 ci 2.5L
Main Bearings 5
Valve Configuration Overhead valve (8 valves), flat followers, hydraulic lifters (1997)
Construction Cast iron block and head
Redline 5,600 rpm
Gas needed Regular (87 octane)
Jeep 2.5 engine 2002-1997 / 1995-1991 / 1990-1987 / 1986-1982
Compression 9.2:1 / 9.1:1 / 9.2:1 / 9.2:1
HP 120-125 @ 5,200 / 123@5250 / 117 @ 5000 / 105 @ 5000
Torque 140-150 @ 3,250 / 139@3250 / 135 @ 3500 /132 @ 2800 RPM
Fuel: Sequential Injection / Multi Point Inj. / Throttle Body Inj. / 1 Barrel Carburetor
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2000 2.5 TJ, 5spd, 33s, 8274
