Can Linux computer be made a router so that several machines may share a single Internet connection? How?

Yes a Linux machine can be made a router. This is called "IP Masquerade." IP Masquerade is a networking function in Linux similar to the one-to-many (1: Many) NAT (Network Address Translation) servers found in many commercial firewalls and network routers. The IP Masquerade feature allows other "internal" computers connected to this Linux box (via PPP, Ethernet, etc.) to also reach the Internet as well. Linux IP Masquerading allows this functionality even if the internal computers do not have IP addresses.

The IP masquerading can be done by the following steps:

1.  The Linux PC must have an internet connection and a connection to LAN. Typically, the Linux PC has two network interfaces-an Ethernet card for the LAN and a dial-up PPP connection to the Internet (through an ISP).
2.  All other systems on your LAN use the Linux PC as the default gateway for TCP/IP networking. Use the same ISP-provided DNS addresses on all systems.
3.  Enable IP forwarding in the kernel. By default the IP forwarding is not enabled. To ensure that IP forwarding is enabled when you reboot your system, place this command in the /etc/rc.d/rc.local file.
4.  Run /sbin/iptables-the IP packet filter administration program-to set up the rules that enable the Linux PC to masquerade for your LAN.