OK let's start:
1. ditch catalytic converter and put on a glass pack.
2. ditch distributor and put in HEI from a mid 70's chev 250 I6
3. check compression and condition of motor, if running OK change the head out for a 4.0L HO head on the YJ / XJ from 93 and up.
4. if FI is not the way you want to go, change the carb to a Weber.
With these changes (going the FI route, the hp is claimed to be close to 200 and you keep the low torque of the 4.2L).
Also check all your vacuum lines, mine were old and cracked and I eliminated a whole ton of them and I got rid of the computer that controlled my carb, and my Heep runs a whole lot better, there are all kinds of webpages out there for you to look at that can give some great advice on what to do to your Heep. Here are just a few:
http://www.jeepsonly.com/How_Tos/http://www.off-road.com/jeep/http://www.4x4wire.com/jeep/tech/electrical/hei02/http://www.geocities.com/jeeperaz/hei.htmhttp://www.off-road.com/jeep/new/40conv.htmlhttp://monsterslayer.com/jeep/40Head/40Head.htmthere are probably way more out there, but I found these in a matter of minutes, and with some references from fellow jeepers.
Advice, if you are a newbie to Jeep's, highly recommend joining the Jeep Association, these guys have helped me out a ton with technical questions:
http://calgaryjeep.com/index.php