I've searched and read multiple threads about how to convert from 27" to 700C, but something is still not clicking with me on how to do this.

I have a 76 Motobecane Grand Record that still has the original Mavics laced to Lux hubs. I love the bike but want to upgrade it's wheels and other parts to make it a good longhaul commuter.
I belive my brakes have enough reach to accomidate the 700c, but I'm not sure weather I need to stick with the 7speed freewheel or move to a casette set up. The dropouts are spaced at 126mm, so what options do I have?