When the phone is hung up you can press a line and get a dial tone and talk through the speaker phone but can't pick a line and get a dial tone...
If I understand you correctly, when you leave the handset in the cradle and press a line, you can hear the dial tone. But, if you lift the handset and then select a line you don't hear anything through the headset. If this is correct, I suspect the handset is damaged, the cord is damaged, or if you're lucky, the clips may not be plugged all the way in on both sides. If you have another phone that is the same, you can switch handsets to test this theory.
Testimonial: "yes that is correct... tried 2 different phones...???"
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