Scalloped Potatoes & Ham

1 stick butter
1/2 cup flour
2 tsp. salt
1/2 tsp. pepper
3 cups milk
3 cups cooked ham
1 large green pepper, chopped
1&1/2 cup shredded cheddar cheese
5 cups potatoes, pared and sliced

Melt butter in large saucepan over medium heat; blend in flour, salt, and pepper. Cook stirring constantly, for about 1 minute. Remove from heat; gradually stir in milk. Return to heat; cook until thickened and bubbly. Add cheese and stir until melted. Mix remaining ingredients in a large bowl. Pour cheese sauce over mixture in bowl and stir, then move into a 9 X 13-inch-baking dishes. Cover with foil and bake at 350º for 30 minutes. Uncover and continue to bake for 1 hour, or until potatoes are done and sauce is thickened slightly. Let stand for 10 minutes before serving.