I agree that governor gear is the most likely culprit. If you do get another governor, don't use it unless it is from another diesel. Just swap the gear onto your old governor. There is just a roll pin to press out. You should also be able to get a new gear from a tranny shop or a GM dealer. Actually, I think the conversion of a diesel 700R4 to a gas one is pretty much just a governor swap.
As for the vacuum line, don't waste your time looking. A 700 doesn't have one. It uses a TV cable instead. If that wasn't hooked up, you would upshift REALLY early.
The other likely culprit is that the Throttle Valve in the tranny is stuck. You would have to reach the WOT upshift rpm to get it into second. You may be able to free it just by dropping the pan and "messing" with this valve (it's the one with the cable going to it, not the one on the opposite side with the shift linkage going to it.) However, if it is stuck, that is probably a sign of some junk circulating through the tranny, which is never a good sign. The 1-2 relay valve could also cause this problem, but usually the TV is the first one to stick since it doesn't have a return spring.