I have a 1995 GEO Tracker 4X4 5 spd tranny. I replaced the third member from a 98 2wd 5 spd tranny. The gear ratio was the same 5.12, but there was an electrical connector on my original third member but not on the 98 third member i used to replace it. I think I remember reading that this was a sensor for ABS but all I can see is a master break cylinder and booster.

So my questions; Is this connector part of an ABS system? I can't think of anything else it could be. Is it OK to leave this connector unconnected??

Yes it is part of the ABS. 

You may get a " brake" light on your dash, and without the tone ring sensor connected I don't think your ABS will work . However, I've had mine disconnected 3 years now ever since I put in my arb locker, and never had a problem. I really don't think the abs on these early Trackicks is anything to write home about anyway. Doesn't do much.