what does lsmod output?
you will need modules for iptables nat and conntrack loaded:
here are some I see on my masquerading router ...
ip_nat_irc 2176 0
ip_nat_ftp 2816 0
ip_conntrack_irc 70800 1 ip_nat_irc
ip_conntrack_ftp 71568 1 ip_nat_ftp
ipt_MASQUERADE 2816 1
iptable_nat 20060 4 ip_nat_irc,ip_nat_ftp,ipt_MASQUERADE
ip_conntrack 38296 6 ip_nat_irc,ip_nat_ftp,ip_conntrack_irc,ip_conntrack_ftp,ipt_MASQUERADE,iptable_nat
iptable_filter 2432 1
ip_tables 20096 3 ipt_MASQUERADE,iptable_nat,iptable_filter
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