"When I enter step one I get a critical diagnostic saying recapture amounts from 4797 part IV should be entered in the input area for the form where the deduction was entered originally. How can I fix this? I have also entered step two, still the critical diagnostic"

This is a Critical Diagnostic Warning - check the box and ignore it. Step one simply prints a number on the 4797. It does not do anything with that number. The warning is that you need to account for that number when you go to Step 2.