I am rebuilding a 70 (early) steering column and seems to have an issue putting the signal arm back in.

The arm is mounted by 4 screws, as shown in #5,

when I install the arm, if the screws are tight, the signal lever will not go up and down freely.
I tried everything... what am I doing wrong?

I look at the diagram and it seems to be fine.

I recall this issue, not sure which car.
Seems there are some spacers in the switch that will stop you from crushing it...maybe you are missing one?

i don't see any in the diagram.

Look at the assembly.
It's two boards with spacers at the screws.
If you tighten it down, the corners fold down and pinches the assembly.

Think of it this way.
When you tighten the screws, there should be a solid un movable connection all the way through....

I can't recall the details but it's a space in the middle with possibly a washer on top.

It's inside assembly number 2 in the diagram

# 6 has 4 legs / tabs when I attempted to move the arm, these tabs stops it from moving. I was thinking about the spacer as well but I tried to mount the arm without #6 for testing and the arm seems to be stiff when tightening the screws.
I have all the pieces shown in the diagram

I got it!
Click to view attachment

after looking at # 6 over and over, I noticed that one side has a larger gap between the legs allowing the arm to move back and forth. I had it flipped backwards.