What equipment do I use to connect a local PSTN call to a VoIP call?
The secnario is I receive a local telephone call from someone wishing
to talk to someone in another country. I then use my VoIP phone to
make the cheap international call & connect or patch the call to the
original telephone call so they can have a normal conversation.

You can do this using a PBX, but you would either have to manually
connect the call asking the caller the number they'd like to dial or
you'd have to set up prompts to have them dial the number they would
like to call.

Thank you for your suggestion. Would you have a specific model in mind
for me to try out? I need to test it first before I purchase any
hardware.. I look forward to hearing from you. Thank you.

There are some ATA's with this ability in the market. Just look for FXO port.
For instance:
Grandstream HandyTone 488
http://www.grandstream.com/y-ht488.htm

Sipura SPA-3000
http://www.sipura.com/products/spa3000.htm

Among others.