A couple of thoughts come to mind. First, testing a battery isn't as straight forward as people think. You can have a poor battery that shows your multi-meter 12V. If you really want to know whether your battery is good, bring it to someone who will load test it. In Canada, Canadian Tire will do that for free.
I only mention this because 99% of the time, getting a "click" when you try to start the bike is a sign of a bad battery. But let's assume for the moment that the battery truly is fine. In that case, there are several possibilities.
1) Your starter solenoid (aka starter relay) may sound as if it's engaging (the click) when it isn't actually making a solid connection internally due to corrosion, for instance. If that's what's going on, it's easy to diagnose by simply jumping the solenoid with a screwdriver (ie. shorting it). If shorting the solenoid terminals externally suddenly gets your starter turning then you need a new solenoid.
2) Assuming your solenoid is good (which can be verified with a circuit tester), if it clicks and engages but the starter doesn't turn, often it's because the contact brushes have come to rest between two adjacent contacts on the commutator. If that's what's going on then put the bike in gear (2nd is easier) and rock it forward so as to cause the starter and engine to rotate a bit - the idea is to push the brushes off the dead spot onto the next contact on the commutator. If this works, it's a sign that your starter needs some TLC... probably new brushes.
3) If the battery is good, the solenoid is good and rotating the engine a bit does nothing, then it's possible that a contact brush is no longer applying enough pressure on the commutator contacts. You may need to replace the brushes. But be fore-warned! New starter brushes for the XJ700 come in two ways
A) You can buy both brushes with leads alone in which case you'll find that one brush lead bolts into place but the second lead will need to be welded into place (there's no bolt and the brush plate is made of stainless steel and can't be soldered).
B) You can buy the starter kit which comes with the one bolt-on brush and the other brush already connected to a new brush plate - and you get some other goodies too, like bearings etc....
Of course, the brushes alone are much cheaper - as I recall from when I did it, they cost me about $23 and another $5 for the welding shop to weld the one brush to the brush plate. But if you have money to burn, the kit is obviously easier.
4) There's also a possibility that one of the armature coil windings has shorted out. That can be tested using the procedure in the service manual.... which is part of the XJCD set (
www.xjcd.org ).
5) If you're lucky, the starter has a bad ground or bad power connection. I'd check and clean those before anything else.
6) I've also come across one starter for an XJ700 which someone had had apart and reassembled wrong. Thrust washers and so on were in the wrong places and there was far too much and too heavy grease in the planetary gears which caused so much resistance that the starter didn't want to turn - I just got a click sound until I opened it up, lightened the grease and put all the washers in the right places.
7) If there's just a click, it's also possible that there might be a problem with the starter clutch...although on an XJ700 that particular problem usually manifests differently.
If you plan to rebuild your starter - carefully note washer locations, use the right grease and not too much of it and be especially careful to note the orientation of the brush plate inside the housing. If you don't, you'll have a heck of a time getting it back together and you'll probably find that the leads for the new brushes come dangerously close to the starter housing (ie. ground). Oh yeah - and be super careful not to damage the insulator around the positive terminal on the side of the starter. It has to be removed to get the starter apart fully but when you put it back, it's really easy to over tighten and crack the insulator which might cause it to fall out of place unexpectedly.
It's really not that difficult but it's wise to make some notes. If you want to see some pictures of an XJ700 starter brush plate and brushes and why there's a bit of difficulty in replacing brushes, you'll find pictures and some more notes here:
http://www.maxim-x.com/pix/starter/brushes/
HAP