Dynamic diffraction grating formation by crossed pump beams with wavelength 514 nm in a mixture of 5CB and azodye R4 was investigated by a probe beam with wavelength 633 nm. The dependence of the diffraction efficiency on the pump and probe polarization is consistent with the dye bleaching and corresponding buildup of the cis species as the main mechanism for the optical grating formation. Diffraction at 633 nm is absorptive and is caused by the periodic distribution of the cis species which absorbs in the red. This observations are in quantitative agreement with simutaneous measurements of absorption at 514 nm and at 633 nm. A rate equation model of the grating formation is presented.