Ubuntu 14.04 as a Gateway / Router and a Firewall

1. Open a Terminal Ctrl+Alt+T

2. Enter following command to edit interfaces file:

   sudo vim /etc/network/interfaces
   

3. Edit the file with the following lines: (add your netmask and gateway)

   auto lo 
   iface lo inet loopback
   
   auto eth0
   iface eth0 inet static
   address 182.x.x.x 
   netmask  x.x.x.x 
   gateway x.x.x.x
   
   auto eth1
   iface eth1 inet static 
   address 192.168.0.1
   netmask x.x.x.x
   

4. Now edit /etc/sysctl.conf and uncomment:

   # net.ipv4.ip_forward=1
   

   so that it reads:

   net.ipv4.ip_forward=1
   

   and save it by entering

   sudo sysctl -p /etc/sysctl.conf

5. To enable IP masquerading, enter following set of commands in terminal:

   sudo iptables -t nat -A POSTROUTING -o eth0 -j MASQUERADE
   
   sudo iptables -A FORWARD -i eth1 -o eth0 -m state --state RELATED,ESTABLISHED -j ACCEPT
   
   sudo iptables -A FORWARD -i eth1 -o eth0 -j ACCEPT
   

Update: Fix strange "-–state" causing command to fail and fix nat MASQUERADE to eth0 (wan interface)

@chreekat's comment is correct that the Ethernet adapters are swapped in step 5 of @Anbu's answer, and as shown (as of 2017-02-21) creates A HUGE SECURITY HOLE that permits unrestricted access to the private network by anyone on the public network.

The corrected configuration for step 5 is shown below.

Theory of operation: (Rule #2) Packets ingressing from the public network (eth0) are accepted for forwarding out to the private network (eth1) if and only if the ingressing public packet is related to a conversation that was established by a host on the private network. (Rule #3) Accept all packets ingressing from the private network (eth1) and forward them out to the public network (eth0).

sudo iptables -t nat -A POSTROUTING -o eth0 -j MASQUERADE
sudo iptables -A FORWARD -i eth0 -o eth1 -m state --state RELATED,ESTABLISHED -j ACCEPT
sudo iptables -A FORWARD -i eth1 -o eth0 -j ACCEPT