Transparent Proxy/Cacheing
If you plan to use your Squid installation as a transparent proxy then you must compile into Squid the network address redirecton components for your system, this can be acheived by using the --enable-linux-netfilter option for GNU/Linux 2.4 and beyond (basically iptables), --enable-ipf-transparent for systems using IP-Filter and --enable-pf-transparent for systems using PF network address redirection.
In Squid 2.6 version transparent proxy has been given a dedicated parameter, this is the transparent parameter and it is given as an argument to the http_port tag within the squid.conf file, as the following example demonstrates:
http_port 192.168.0.1:3128 transparent
In this example the IP address that Squid is set to listen to is 192.168.0.1 using port number 3128. The transparent option is then used to inform squid that this IP and port should be listened to as a transparent proxy, this completes the configuration of Squid as a transparent proxy server (yes that's right, all done!).