First of all, we need to prepare the kernel for kerneld, ppp, and IP masquerading. Here are the main parts you need to know:

Get a recent kernel source (I am using 2.0.30). No patches to the kernel are needed for 2.0.30 or above. Before that, you will have to find patches at the IP Masquerade Resource page. Do your make menuconfig or make xconfig. Here are the settings that must be made for this setup; be sure to set your other settings.
  1. Under "Code maturity level options", turn on "Prompt for development and/or incomplete code/drivers."
  2. Under Loadable module support, set "Enable loadable module support"
  3. Set version information on all symbols for modules: Y
  4. Kernel daemon support: Y
  5. Under "Networking options" turn on the following:

Build and install your kernel and modules as you normally would (or as in your instructions if you never have).

If your system isn't already using kerneld (my RedHat 4.1 does by default) then read the Dial-On-Demand mini-HOWTO, section 2, for more information. There is also more information on building the kernel there.

After your system successfully boots with the new kernel, move on to the next stage.

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