We hear this several times a month in the jeep world.. Folks rebuild their brake system, and all seems fine in the shop. Going on a test ride, the brakes start to get hot.. The pedal gets higher and higher and eventually it seems like the brakes are rock hard and either the jeeps grinds to a stop or the brakes fade to nothing. All the while, if the driver looks, the brake lights stay on. In some cases� especially those whose brakes are in poor shape or out of adjustment the only clue there is a problem is that the brake lights stay on after braking and don't go out.
Ranchhopper recently had a similar problem, and here is what he said about it when it was all said and done.
"Just an update when you get dragging brakes and your pedal loses its travel, back the adjustment of the push rod off. My problem was the piston was sitting over the bypass hole in the reservoir preventing the build up of pressure from the expanding brake fluid to escape into the master. If you look how the manual says to adjust the push rod it says to only have a half inch of free play on the pedal that doesn't work your supposed to have a half inch of free play BEFORE contacting the piston so I adjusted the pushrod so it had just enough pressure to hold it into the divot in the back side of the piston. I have a couple inches of travel in the pedal now but no more dragging brakes and it stops good as expected for the technology of the time it was manufactured."
The factory service manual has instructions on how to properly set the free play and pushrod.(Take note of how much play Ranchopper said you end up with to make the brakes work....) Of course you will need to free up any frozen parts like the threaded part of the pushrod before you can do that.
One other thing that I have personally experienced that has caused this is rebuilding a master cylinder using incorrect parts. One imported kit I used had a thicker spacer washer in it that ended up doing the same thing as pressing the pedal slightly would have done. Leaving that part out, my brakes worked. With it in, the jeep exhibited classic dragging brake syndrome.