It's not just a firewall issue?
try running something like:
export HTTP_PROXY=http://127.0.0.1:3128; curl -I http://google.com
(If curl isn't installed, you can get it from your Redhat CDs)
If curl returns back a "HTTP/1.0 302", and Squid reports in your access.log, your good. Try another linux computer in your network (if possible) just the same.
If curl returns back a "HTTP/1.0 500", your squid.conf is probably wrong and you should try reverting back to the original squid.conf that was provided with your RPM. Restart the service and try again.