GRE is a tunneling protocol that was originally developed by Cisco, and it can do a few more things than IP-in-IP tunneling. For example, you can also transport multicast traffic and IPv6 through a GRE tunnel.
In Linux, you'll need the ip_gre.o module.
Let's do IPv4 tunneling first:
Let's say you have 3 networks: Internal networks A and B, and intermediate network C (or let's say, Internet).
So we have network A:
network 10.0.1.0 netmask 255.255.255.0 router 10.0.1.1
and network B:
network 10.0.2.0 netmask 255.255.255.0 router 10.0.2.1
As far as network C is concerned, we assume that it will pass any packet sent from A to B and vice versa. How and why, we do not care.
On the router of network A, you do the following:
ip tunnel add netb mode gre remote 172.19.20.21 local 172.16.17.18 ttl 255 ip link set netb up ip addr add 10.0.1.1 dev netb ip route add 10.0.2.0/24 dev netb
Let's discuss this for a bit. In line 1, we added a tunnel device, and called it netb (which is kind of obvious because that's where we want it to go). Furthermore we told it to use the GRE protocol (mode gre), that the remote address is 172.19.20.21 (the router at the other end), that our tunneling packets should originate from 172.16.17.18 (which allows your router to have several IP addresses on network C and let you decide which one to use for tunneling) and that the TTL field of the packet should be set to 255 (ttl 255).
The second line enables the device.
In the third line we gave the newly born interface netb the address 10.0.1.1. This is OK for smaller networks, but when you're starting up a mining expedition (LOTS of tunnels), you might want to consider using another IP range for tunneling interfaces (in this example, you could use 10.0.3.0).
In the fourth line we set the route for network B. Note the different notation for the netmask. If you're not familiar with this notation, here's how it works: you write out the netmask in binary form, and you count all the ones. If you don't know how to do that, just remember that 255.0.0.0 is /8, 255.255.0.0 is /16 and 255.255.255.0 is /24. Oh, and 255.255.254.0 is /23, in case you were wondering.
But enough about this, let's go on with the router of network B.
ip tunnel add neta mode gre remote 172.16.17.18 local 172.19.20.21 ttl 255 ip link set neta up ip addr add 10.0.2.1 dev neta ip route add 10.0.1.0/24 dev neta
ip link set netb down ip tunnel del netb
See Section 6 for a short bit about IPv6 Addresses.
On with the tunnels.
Let's assume that you have the following IPv6 network, and you want to connect it to 6bone, or a friend.
ip tunnel add sixbone mode sit remote 172.22.23.24 local 172.16.17.18 ttl 255 ip link set sixbone up ip addr add 3ffe:406:5:1:5:a:2:1/96 dev sixbone ip route add 3ffe::/15 dev sixbone
Let's discuss this. In the first line, we created a tunnel device called sixbone. We gave it mode sit (which is IPv6 in IPv4 tunneling) and told it where to go to (remote) and where to come from (local). TTL is set to maximum, 255. Next, we made the device active (up). After that, we added our own network address, and set a route for 3ffe::/15 (which is currently all of 6bone) through the tunnel.
GRE tunnels are currently the preferred type of tunneling. It's a standard that is also widely adopted outside the Linux community and therefore a Good Thing.