Internet Connection Sharing (ICS) enables a Windows computer to share its Internet connection with other computers on local area networks. You will need to designate a computer (with Windows XP) as the host. This host computer must have two network adapters, one will be configured to connect to the internal network and the other one will be is configured to connect to the Internet.

Before attempting to enable ICS, verify that the host computer has a working connection to the Internet through the network card connected to the cable modem or DSL line, or on the network connection associated with the modem or data card.

To configure the Internet Connection Sharing, following steps need to be followed on the host computer:

  1. Open "Control Panel" with Administrator account.
  2. Click "Network and Internet Connections".
  3. Click "Network Connections".
  4. Right-click the connection that you use to connect to the Internet. 
  5. Click "Properties".
  6. Click the "Advanced" tab.
  7. Under "Internet Connection Sharing", select the "Allow other network users to connect through this computer's Internet connection" check box.
  8. If you are sharing a dial-up Internet connection, select the "Establish a dial-up connection whenever a computer on my network attempts to access the Internet" check box if you want to permit your computer to automatically connect to the Internet.
  9. Click "OK". You receive the following message:
    When Internet Connection Sharing is enabled, your LAN adapter will be set to use IP
    address 192.168.0.1. Your computer may lose connectivity with other computers on
    your network. If these other computers have static IP addresses, it is a good idea to set them
    to obtain their IP addresses automatically. Are you sure you want to enable Internet
    Connection Sharing?
  10. Click "Yes".

Now to configure the client computer to use the shared Internet connection, you need to follow these steps:

  1. Open "Control Panel" with Administrator account.
  2. Click Network and Internet Connections".
  3. Click "Internet Options".
  4. In the "Internet Properties" dialog box, click the "Connections" tab.
  5. Click the "Setup" button. The New Connection Wizard starts.
  6. On the "Welcome to the New Connection Wizard" page, click "Next".
  7. Click "Connect to the Internet", and then click "Next".
  8. Click "Set up my connection manually", and then click "Next".
  9. Click "Connect using a broadband connection that is always on", and then click "Next".
  10. On the "Completing the New Connection Wizard" page, click "Finish".

Now when you open Internet Explorer on the client computer, it will try to connect to the Internet by using the host computer's shared Internet connection.
Source: Microsoft