Gateway and router on one computer

Solution 1:

The way that we were able to solve this was to change the NAT rule to an SNAT instead of a masquerade.

Solution 2:

On most distro, unless they are set up to serve as routers, they will default to the behavior of refusing to forward IP traffic. Generally I use a packetprotector (linux running on asus home router) for such work. But you will want to check the settings in /etc/sysctl.conf.

Look for 'net.ipv4.ip_forward = ', if you wish to forward traffic, this value should be set to 1 (if not then '0'). Changing the file here will have the change persist across reboots, and will start when network services start.