Q. How do I setup masquerading for my Linux iptables firewall? What rules I need to apply or write?
A. Iptables is used to set up, maintain, and inspect the tables of IP packet filter rules in the Linux kernel. Several different tables may be defined. Each table contains a number of built-in chains and may also contain user-defined chains. However, to setup masquerading you need to use special target called MASQUERADE.
This target is only valid in the nat table, in the POSTROUTING chain. It should only be used with dynamically assigned IP (dialup) connections: if you have a static IP address, you should use the SNAT target.
You need to type following rule (or add to your script):
iptables -t nat -A POSTROUTING -o eth0 -j MASQUERADE
Also set net.ipv4.ip_forward to 1:
See this previous article for more step by step instructions.