Welcome to the world of EDS (Electronic Diesel System - not to be confused with the company started by Ross Perot )

the sensor (L3) that generates the tach pulses is located at the flywheel, unlike the earlier 617 engines which used a magnetic pick up at the crank damper on the front of those engines.
The 124 diesels use the ring gear (where the starter motor engages during starting) to send 144 individual pulses per revolution to the EDS module.
The interconnecting cable goes to the sensor located at the rear of the oil pan, left side. I believe it is near the ground wire that connects the engine to the frame. Look for a damaged or loose sensor.
The EDS module's primary function is to hold the idle speed at the set point value. I am pretty certain it also feeds the tach gauge eventually.

Perform a check using the EDS idle speed adjust switch. If you remove the trim plug the engine should idle down to about 570 RPM. It should be set to 630 RPM +/- 20 RPM with the trim plug. If that is working then the sensor is ok and the next route that you would trace is the AC compressor unit (N6) unfortunately that's where my experience stops

Note that I speak from experience with 603 turbos, so I hope your engine is similar. Things may be different. A FSM is helpful if you are going to work on your car because it will also include a wiring diagram. The 124 is entirely different from earlier diesels and you can't wire directly from the gauge to the sensor.

I've never seen a NA '87 diesel. Is it a grey market car? Automatic or stick (just curious, a 5-speed behind a NA 6 cyl diesel would be sweet!)

__________________
'95 E320 Wagon my favorite road car. '99 E300D wolf in sheeps body, '87 300D Sportline suspension, '79 300TD w/ 617.952 engine at 367,750 and counting!