As you figured out, the algebraic loop solver uses a gradient descent method to solve the loop. The If/Else construct causes a discontinuity in the loop which is problematic for a gradient descent method.
When you have an algebraic loop, the blocks in the loop should be continuous both in time and values.
I recommend looking at the demo "sl_subsys_semantics". This demo contains many small models illustrating good and bad practices in this area.
very likely, you will need to either introduce a delay in the loop or rearrange your equations to avoid algebraic loops.
