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You need a set of gears !!----Pinion and forward at least.----Need tools or take to a shop to shim driveshaft / pinion gear,---Post picture of driveshaft surface below the thrust bearing !----New bearings too.

Install a new water pump impeller before launching your boat.

Need to check that cylinder sleeve for cracks.

Some will argue.-----I would do the following.-----Have battery load tested even if it is new.------Take starter apart for inspection / cleaning / ohm test on armature/ perhaps new brushes.-----Brushes I install are $6.50 so not much money spent !!

Put it on a boat.----Test run out on the lake.

Perhaps shifter fork in lower unit broke ?-----Might as well take lower unit off.-----Likely due for impeller and oil seal kit anyway.

There was a plastic washer installed at the factory.-----On top of the water tube.----On severe overheat it could melt and block waterflow.----Factory replacement ( have them on hand ) now is phenolic.----

Maybe the shift pin fell out at the top of the rod.

Those steel tanks have some small o-rings in the tank housing.----Easy repair for me.

Is the shift rod moving up and down on the motor ?-----Drain gear oil.-----If that is good the lower unit needs to come apart.

Shift interlock was used on the 7.5 and 9.8 HP models in the 1970's

Have you factored in the extra tax on boats over $100,000 in Canada ?

Remove sparkplugs.-----Turn water on for the muffs.----Crank it over.----Does water spray out of plug holes ??

Mercury used interlock set-up in the 1970's !!

Take the powerhead off.-----Inspect washer at top of the water tube.

Well---You have to sort this out yesterday.-----Water inside an outboard will quickly destroy the bearings

Did you inspect plastic washer at the top of the water tube ?

Cylinder compression and crankcase compression are 2 different things.-----It is impossible to have 65# compression in the crankcase !!

No head gasket on those that can leak water into the cylinders

Did you have the orifice plugs in your hands , taken out of the float bowl ?-----