Well guys, the head gaskets are all set, found a cracked knock sensor and replaced that, now have a NEW electrical issue. After changing the knock sensor, the car started and ran fine except for a slight delay in shifting (it's done this before when if was low on transmission fluid), so I took it home after warming it enough to check the transmission, was a little low but not significant. Let the car sit overnight and tried to start it. No go, sounded like it was going to start but nothing. I shut the car off and left the key in the ignition, opened hood to see if I could see any blown fuses, and heard a distinct clicking sound, sounded like it was not coming from the starter. Got back in the car and removed the keys, all indicator lights stayed on and the clicking sound continued until I disconnected the battery. Any suggestions?

Reconnect the battery.........see if that corrects the problem.

Already tried that, as soon as I try to start the car again the problem recurs. If the solution were that simple I wouldn't have posted for help. I am aware that sometimes a simple "hard reset" can solve a simple electrical issue, but when disconnecting and reconnecting the battery did not help, I decided it was time to ask for additional help. I have no problems with most of the mechanicals, just get easily annoyed by electrical issues as the symptoms do not always lead directly to the causes.

I'm slightly fuzzy on what is actually happening ... are you saying when you put the key to start you hear clicking but no cranking?

 

If so, can you try jiggling the shifter or moving the shifter to neutral? Not an unheard of thing on that era.

I'm not getting a full picture either but clicking could be ABS unit. But that wouldn't cause starting issues - unless the battery is being compromised from it.

ok, clarification.

When you turn the key to the on position (no even to start position) and then the key is turned off and removed, the electrical system stays hot, indicator lights stay on, fans can run, lights, wipers, etc....

If you disconnect the battery and then reconnect, everything resets, then put the key in the ignition, turn to on, and the cycle starts again.

clicking is the ABS, but is not the problem, just a side aftereffect.

Double check the main engine harness connectors, and also the ground bolt on hte intake.

 

Weird things happen when you turn the key on without those connectors being 100%

This same kind of problem happened to Pamike. Here is a link to the problem he had. The trouble seemed to just go away for him after some time.

http://www.ultimatesubaru.org/forum/showthread.php?t=132256

 

It sounds like the ECU for some reason is not turning off the Main Relay when the ignition is turned off or the relay is latching on somehow. Removing the battery power breaks the cycle. The Main Relay is way up inside on the left side of the dash and in a brown socket. See if the light green wire going to the relay coil has power on it when the ignition is OFF and the trouble is occurring. If there is then the ECU may be causing the trouble. Make sure all connections to the ECU are correct. If the ECU is faulty you should be able to get a used replacement from a salvage yard for a reasonable price or get a repaired unit for a low cost compared to a new one.