In medium saucepan over medium heat, melt butter or margarine. Add flour; cook and stir for a minute or two until bubbly. Add milk and stir constantly until thickened.
In greased 2-quart casserole, layer half of potatoes, half of onion; sprinkle with salt and pepper. Repeat with remaining potatoes and onions. Pour white sauce over all.
Cover and bake at 350F for 30 minutes; uncover and bake 30 minutes longer or until potatoes are tender.
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