Squid and increaing from "4096 file descriptors"

[Jeff Green <jeff@the-greens.org>]

In running a squid on a large and capable (Dual Xeon 4GB RAM) server to 
supply furniture graphics for a large website we are unable to find any way 
to increase the number of available file descriptors beyond 4096. The server 
has the following ulimits:-
ulimit -a
core file size        (blocks, -c) 0
data seg size         (kbytes, -d) unlimited
file size             (blocks, -f) unlimited
max locked memory     (kbytes, -l) unlimited
max memory size       (kbytes, -m) unlimited
open files                    (-n) 32768
pipe size          (512 bytes, -p) 8
stack size            (kbytes, -s) 8192
cpu time             (seconds, -t) unlimited
max user processes            (-u) unlimited
virtual memory        (kbytes, -v) unlimited

cat /proc/sys/fs/file-max gives

206283

and /etc/default/squid    contains
SQUID_MAXFD=32768

I assume we need to rebuild the package after changing the appropriate files 
but does anyone have any clue what changes we need to make to which files?

Jeff