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In order to save bandwidth, I have set up a caching proxy (Polipo, as recommended on another question) on a home server, and it works quite well.

(Motivation paragraph; feel free to skip) I am now looking at making it more useful by getting as many devices and software as possible to use it. However, it is not always possible (Steam, for example, doesn't follow the system proxy settings and doesn't let you customize this). Additionally, it tends to be time-consuming to set up on everything (iPhones, Nintendo DS, etc) and causes problems on mobile devices (laptops), because since the caching proxy is on the local network and only serves that network, then as soon as the laptop is taken out of the network, the proxy settings have to be reconfigured, and then back again when going back home. Guests also tend to use some generous amounts of bandwidth when they can, since they're not paying for it, so it would be nice to be able to make them go through the cache first to mitigate some of that.

Hence the following question: Would it be possible to make this proxy act as a transparent proxy that all other members of the network go through automatically whenever they are on this network? I understand that this might be possible to do by making the home server act as a router, but is that the only way? (The home server only has one physical network interface). If so, what's the best way to go about setting it up?

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Back in the day, I set up Squid as transparent proxy. The only way to get out to the Internet from the local network was through a Linux firewall, so redirecting the traffic with a few iptables rules was easy. It looks like Polipo doesn't do transparent (intercept) proxying, though (I guess I'm a fascist pig with a read only mind).

The proxy can be anywhere, but you do need a choke point between your internet connection and your home network to redirect traffic.

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