Very common issue.----My guess , you took lower unit off in neutral.----If yes I would say it jumped into forward when you were not looking.----Start over and make sure lower unit and control are both in forward or both in neutral when assembing.
On a 2 HP or 300 HP motor.-----I am guessing it is for the tell tale or water pressure gauge.----More pictures to show where it is on the motor ?----Model # of the motor ?
Need to be clear.----Were there back to back seals below the shift rod housing ??----This unit shifts with oil pressure and unit needs to be full of oil.----No it is not electric shift.----If it slams into forward at high revs it can damage the clutch dog.
Has the typical " broken shift handle "------Have seen many different fixes for that.----Having a shop do a factory replacement is a shocking expense !