This is how it works:
Now when you try to access the internet (for example: ping google.com) from any of these machines (for example, from 192.168.3.2), the following is the sequence of events that happens.
Since the destination (google.com) is not within 3.* series, it will be forwarded to GATEWAY via 3.10 interface
In GATEWAY, it checks whether the destination is within 1.* range. In this example, it is not.
It then checks whether the destination is within 3.* range. IN this example, it is not
Finally, it takes the default route to forward the packets (i.e using the 126.96.36.199 interface, which is connected to the external world).