There are three steps to doing this.

1 - Enable IP Forwarding. Look for a file called ip_forward and the it's contents to 1. For example:
bash -c "echo 1 > /proc/sys/net/ipv4/ip_forward"

2 - Enable NAT Take the packets that originate from the 192.168.1.0/255.255.255.0 network and are going to be routed the eth1 card, and change them so it looks like the IP address they came from *is* the eth1 IP address as follows:
iptables -t nat -A POSTROUTING -s 192.168.1.0/255.255.255.0 -o eth1 -j MASQUERADE

3 - on your 'local' machines that need access, you need to set them to use 192.168.1.7 as their gateway / default route.

There is an alternative method, called bridging, where you can set your two NIC cards to "bridge" to the same network. It effectively accomplishes the same thing, but at a lower level. Using NAT with IP tables is emulating a layer 3 switch which bridging emulates a layer 2 switch. Here is a link to a how-to that also has information about the method above.

Thanks all. Is there is any other way a linux mahine can be configure as a router

This is a very broad topic and even a basic search for "linux as a router" returns many pages of how to documents for just about every distribution imaginable, including ones oriented towards small 'embedded' PCs. For the most part, they all come down to the same thing as described in this thread: turn on ip forwarding and configuring your firewall. Some go into a lot of detail regarding customization and security, which depending on your needs may be important to you.

This makes your question very difficult to attempt to answer. Do you have a specific question, are you running into trouble with a procedure, or are you getting an error message?

Honestly, I think the easiest and likely best approach would be to simply buy an inexpensive switch rather than trying to route all of your traffic through your server. You will probably get better, more reliable performance overall.

Why I am trying this DNS server, we have a squid proxy sever as well in a different machine. So the http request from all users should go to that proxy as well as they should ping from their local machine to the internet. How I can configure a Dns server that my client from the 192.168.0.0/24 network can ping to the Internet.

Agreed:

You should just buy a simple router for $30 to better accomplish NAT. Configuring a 'muli-homed' Linux server are a router will take various attempts to tweak a probably long firewall script.

Finally Every thing seems to be in a right path. I installed smoothwall on a box having two NICs. so my dns server resolves everything and forwards to the internet.Thanks all guys supported this thred.