This is a common "pendulum" reverse unit, the ones that Lionel replaced with the barrel unit known as an e unit.
I would have liked to provided you with a link, but the Olsen Toy Train Parts website always seems to act up for me. In Olsen Toy Train Parts library, you will most likely find information on the reverse unit under standard gauge. It's the same piece your 260E has virtually the same unit.
Going from memory:
My advice is to use pictures or put tape tags on the wires so you know their location. You can get to the contacts by prying the back apart a little bit, and clean and adjust them a bit if need be, and it should work fairly reliably. They aren't 100% perfect, but they can be made to work well.
Replace all wiring that can be easily replaced. The tough ones are the coil wires (heavy black, heavy white), and the roller pickup wire. Those may require shrink tube, or cutting and splicing, but it can be done.
Once done, just reassemble and try it. The flapper on top of the reverse unit frame should be touching the contact strip. When power is applied, the magnetic force pulls it to the field.
Just work slow, take notes or pictures before you take things apart and you'll get it.