I believe your in neutral. Don't sweat it. The lower half shifts into forward, neutral and reverse by turning the lower shift shaft I have circled. Clockwise on the splined shaft while turning the prop CCW will put the drive in forward gear, it will lock. Turning the splined shaft CCW while turning the prop shaft CW will lock the lower in reverse, and with the splined shaft somewhere in the middle the prop shaft will freespin both ways.
The vertical shaft is tough to move because of the friction of the new impeller on it.
When you bolt the halves back together, you have to have the lower half in forward the entire time, splined shaft CW and prop shaft CCW so it locks. Keep pressure on the prop shaft to keep it locked in forward. If it gets bumped out before they are mated you have to separate enough to reach the splined shaft and turn it again CW and do it again.
With the lower half in forward, make sure the shift shaft foot in the upper half will be positioned straight ahead, that will also be forward gear, and make sure the stainless steel washer around the splined lower shift shaft is in place, they can fall out of your not paying attention.