A 12-year-old boy was gunned down in his Southeast Washington home yesterday afternoon, moments after he witnessed a violent argument between his uncle and drug dealers who burst through the back door, police said.

Mark Settles, a sixth grader at Weatherless Elementary School in Southeast, was found dead on the kitchen floor of his home in the 200 block of 37th Place SE. Neighbors, who cried on lawns and stared from curbs for hours after the shooting, angrily said the street is infested with drug traders who often use teen-agers to conduct sales.

Mark was found about 3:30 p.m. lying next to the family dog, which was shot to death through the head, police said. The boy's infant brother John, with whom he was baby-sitting, was found sleeping on a couch, unharmed.

The boy's uncle, John Settles, 24, who also was in the home when the shooting occurred, received a superficial bullet wound in the leg. He was in good condition at D.C. General Hospital, a hospital spokesman said.

Police sources said John Settles, who apparently feigned death after he was shot in hopes the assailants would flee, initially was interviewed by police in connection with the shooting. But police said they quickly determined that the uncle also had been a victim of the attack.

Relatives said Mark's mother Ellie had left the house briefly in the afternoon and walked to the home of a cousin to have her hair styled. Mark was home from school yesterday, relatives said, because he had an eye infection.

Police declined to describe the boy's exact wounds but said it was not an execution-style slaying. They said they have no suspects in the case.

His teen-age friends paced and wept in the cold as they watched police tape off the boy's white-brick house, near the top of a hill that begins at 37th and B streets SE. Adult residents said the dark hilltop serves as a haven for drug dealers' round-the-clock transactions.

"We say we live on a hill, but we really live in hell up here," said Betty Gaskins, who lives a few houses away from the Settleses. "That could have been my boy killed, or any other boy on this block, and it's because of all the trouble here. You worry about it all the time."

Gaskins said Mark often helped her find her 13-year-old son in the early evening. "I would be worrying about my boy being out somewhere getting mixed up with the drugs around here, and sometimes I'd go outside looking for him, and sometimes Mark would be out there and he would always say, 'Miss Gaskins, do you want me to go looking for him?' And he would. He was a nice child."

Gaskins paused, wiped her eyes, and looked with disbelief at four boys mugging in front of television cameras. "These kids just don't understand what could happen to them," she said.

Mark's friends and neighbors said he was a polite, athletic child, one of the most popular in the neighborhood. "Mark always played all kinds of sports with us after school," said Shawn Cooper, 13, as a tear streaked his face. "We played tag, football, basketball, everything."

Michael Robinson, a 14-year-old cousin of Mark's who lived across the street from him, said he heard gunshots while he walking home from school. "All of a sudden I heard the noises and I ran as fast as I can inside my house and laid down there until I heard the police come," he said. "Then I came out and heard people crying and saying, 'Mark got shot, Mark got shot.' "

Robinson said Mark often played football in the street after school with other boys in the neighborhood, listened to rap music and frequented a video arcade. "He liked to play like Walter Payton, and he said he liked to listen to L.L. Cool J's stuff," Robinson said. "And now he's dead. Why did they kill his dog? I can't believe they killed his dog, too."

Some neighbors cursed police as family members were not allowed in the home until after the boy's body had been removed. Others watched quietly from a distance, and spoke anonymously to reporters for fear of reprisal from the street's drug dealers.

"A stray bullet just came through my window last week. Somebody's always shooting at somebody around here," one man said. He suddenly pointed to faces in the crowd. "See those guys, those guys deal. And look at them just watching this. They probably know what was up."

Another teen-ager, who said he was called Big Man, said he suspected he knew what had happened. "I bet the dealers came down on his uncle, then shot him a bit to warn him, but then killed the kid to show him they weren't playing. Nobody's playing 'round here."