Replace the rear axle with a D44 from another TJ or an 8.8 from a 95 to 01 Explorer. The TJ rear axle will be a bolt in, whereas the 8.8 will require some welding on of brackets. Another option is to modify your D35 with a Super35 kit. The kit includes locker, gears, axle shafts that are all designed to work with the tire size and stock D35 rear axle. In terms of cost, that all depends on availability in your area as well as time down for you to get the work done.
No matter what, with the larger tire size, you'll definately will need to bump your ratios down (high numerically) to gain the performance back. If you are going to open and set up new ratios, might as look and weigh out adding lockets. There are plenty of choices ranging from limited slips (more street than offroad), to lunchbox lockers (street/offroad), to complete case lockers (fulltime/partime). Full case lockers have the same tendencies as lunchox lockers, but rather than swap in internals for the locker (lunchbox), the entire case is a locker. The part-time version of a locker is the most expensive of the bunch, obviously. For street, it is the best option as you can leave it open. For offroad, you can determine to lock the axles together.
What a locker represents is the capability to maintain the speed of the axle shafts to be the same (locking), so there is no difference between the tires rotation. What a limited slip does is provide a slip mechanism so that one axle can spin faster than the other. In making turns, the inside tire doesn't rotate as fast as the outside tire on the same axle.
So what is your budget? That also plays a big part in choosing a set of lockers. Good luck.
