Regarding swaping your Jeep CJ7s gas engine with a diesel engine: While installing the diesel engine, you'll need to install all the diesel emission components for that engine as well. After the swap is complete, the vehicle will have to be inspected by a California State Referee. The Referee will ensure that the job was done properly and that the new engine does not pollute. If all is well they will issue you a BAR label which will be placed somewhere on your vehicles chassis which will be an indication that the vehicle is California legal. We recommend you get up-to-date information, from the referee's office right before you begin this project. You can contact the referee by calling (800)622-7733.
As far as what to expect in terms of a Diesel Smog Inspection which will be administered to your Jeep during the Smog Referee's inspection... your Jeep will no longer be driven on the dynamometer during the diesel smog check (as it would have while equipped with a gas engine). Instead the diesel smog test will focus on a visual inspection of your vehicle's emissions/smog components, a system check of the On Board Diagnostics (OBD II) system, a visual smoke check for excessive black (carbon) smoke, and an EVAP functional test.
