PREHEAT oven to 375°F. Melt margarine in medium saucepan on medium heat; blend in flour. Gradually add milk, stirring until well blended; cook and stir until sauce is thickened and begins to boil. Remove from heat. Add cheese and mustard; stir until cheese is completely melted and mixture is well blended.
ARRANGE half of the potatoes in lightly greased 2-quart shallow baking dish; cover with layers of half each of the peppers and onions. Top with half the cheese sauce. Repeat all layers; cover.
BAKE 50 minutes. Remove cover; increase oven temperature to 400°F. Bake an additional 20 minutes or until potatoes are tender.
