In a small saucepan over low heat, melt butter. Stir in the flour, salt and pepper until smooth and bubbly. Gradually stir in milk. Bring to a boil; cook and stir for 2 minutes or until thickened. Remove from the heat. In a greased 1-qt. baking dish, layer half of the potatoes. Add the onion and half of the sauce. Top with remaining potatoes and sauce. Cover and bake at 350° for 35-40 minutes or until potatoes are tender.