In a large saucepan, melt butter. Stir in flour, 1 teaspoon salt and 1 teaspoon pepper until smooth. Gradually add milk; bring to a boil. Cook and stir for 2 minutes or until thickened and bubbly; set aside. , Combine the potatoes, onions, cheese, remaining salt and pepper. Place a third of the mixture in a greased 5-qt. baking dish; top with a third of the sauce. Repeat layers twice. , Cover and bake at 350° for 2-1/2 hours. Uncover; bake 30 minutes longer or until potatoes are tender.