For generations, folks have been coming to Betty's Restaurant to grab their morning coffee and solve the world's problems. "If you have a problem, just bring it here," said 82-year-old Ralph Shipe, who sat at the table reserved for residents who have lived here at least 30 years.

Today some world leaders followed Shipe's advice.

At a key federal training center less than a mile from the restaurant, Israeli Prime Minister Ehud Barak and Syrian Foreign Minister Farouk Charaa began two weeks of talks about their problem--no less than peace in the Middle East--with the help of leaders such as Secretary of State Madeleine K. Albright and President Clinton. All this in a little town on the Potomac River with about 1,300 people, a population that could double in the coming days because of visiting diplomats, members of the media and others drawn by the talks.

Big news? The daily newspaper that serves the area responded with a banner headline, "Israel, Syria to Meet Here," that locals say rivals any in the last century.

"One comment was that they haven't had a headline that big since the Japanese bombed Pearl Harbor," said Vincent Parmesano, the town's mayor.

Big news, indeed--so much so that most of the townspeople worked through the holiday season to put out a special welcome mat to the world. Today, signs reading "Peace"--with translations of the word in Hebrew and Arabic--hung in shops and windows throughout the town. Townspeople wore sweatshirts commemorating the talks, shirts that local merchants had trouble keeping in stock.

Shortly before a crowd of about 50 residents cheered Clinton as he landed by helicopter at a Shepherd College ballfield, the bells at Shepherdstown Presbyterian Church rang out. The ringing called townspeople to a noon prayer vigil that they said will continue throughout the talks. The church began the vigil with an ecumenical service on New Year's Day.

"There were representatives from the Jewish faith and the Islamic faith and the Christian faith," said Sally Fitzgerald, a member of the congregation, who added that there some from the Bahai faith, also.

All this was mixed with a bit of small-town whimsy, epitomized by a vicious rumor spread by a 70-year-old member of the Betty's Restaurant inner circle. John Lowe let it be known that he had rescheduled his annual raccoon hunt to coincide with the peace talks. Lowe said he was called by one law enforcement official frantic about the likely reaction to booming shotguns of hunters.

"Oh, he was stammering and stuttering," Lowe said. "We just made it up to have a little fun."

Most, though, took the talks with deadly seriousness. Townspeople have quickly come to feel they have a stake in the outcome of the talks.

"I think we can have the Shepherdstown accords go down in history. . . . I think that would be a marvelous moment," Parmesano said.

So marvelous that, if the talks are successful, Shepherdstown can place itself on the list of names that have become synonymous with peace, such as Dayton and Camp David.

Ironically, despite the potential for such a payoff, cities spend more time bidding for political conventions and major sporting events than they do to host peace talks. In fact, nobody in Shepherdstown did anything in particular to bring the talks to town.

Parmesano simply was paid a visit by a State Department official two weeks ago who--like Ed McMahon carrying that Publishers Clearing House check--informed the mayor that the city would be host of the talks and, with that, have a chance at history.

Why Shepherdstown? Townspeople have their theories. One involves a reported sighting of the secretary of state not long ago buying a stuffed animal in a local shop for a grandchild.

"We just thought she thought it was a cute little town," said 48-year-old resident Marty Bowen.

The more conventional wisdom says that the selection of Shepherdstown had more to do with proximity to Washington and with a political animal--Sen. Robert C. Byrd (D-W.Va.), whose name adorns everything from the Robert C. Byrd Science and Technology Center at Shepherd College to the Robert C. Byrd Room that houses the continental breakfast buffet at the nearby Comfort Suites motel.

Most folks, however, know Byrd for the buildings where his name doesn't appear: the numerous federal buildings he is credited with bringing to the area. Two of them--the Office of Personnel Management's Executive Training Center and the Interior Department's National Conservation Training Center--were selected to be sites for the talks.

Though the peace talks have thrust Shepherdstown into the news, townspeople are quick to note that their community has been making history for many years now. Brochures hail the town as the oldest in what now constitutes West Virginia, first incorporated as Mecklenburg in 1762. Though the town has many claims to fame, including being "the birthplace of the steamboat," it is best known for having served as an impromptu hospital for Robert E. Lee's retreating Confederate army after the bloody battle of Antietam about five miles away.

In between then and now, a curious thing happened to the community: For much of the 20th century, the town could not afford to tear down its old buildings and rebuild, the mayor said. The good news was that as the century came to a close, what was once simply old and run-down appeared suddenly to have character. All the town needed was an infusion of capital, and soon it came, in good part from around the nation's capital.

"I drove down this street four years ago, pulled in front of this little library there and knew I came home," said shop owner Roni LaVache. "And I went back to Silver Spring, put my home on the market and moved here as soon as I could."

Suddenly, on Main Street, next to fixtures like Betty's Restaurant and a barbershop with a spiraling barber pole and across from the town's largest employer, Shepherd College, there were shops selling herbs, espresso and sushi. And more and more celebrities started being sighted.

Nancy Reagan reportedly lunched here. Sen. Edward M. Kennedy (D-Mass.) was said to be fond of a local inn. Now the town even is home to a big Internet company.

The biggest problem in town: People universally complain about traffic at the four-way stop sign at the beginning of Main Street. But that problem is a function of growth. The town, one resident says, has a reputation for being a home for "retired federal employees and high-quality hippies." Others put the conflict in other terms--old-timers vs. the outsiders.

"All these people who come here are highly educated and had big government jobs--directors of this, directors of that," said longtime resident John Lowe. "They want to run things. . . . When you come into town for two months, you ought to shut your mouth."

But the emotion displayed by many old-timers is not anger but sadness.

"You used to be able to walk down the street and know nine out of 10 people," Richard Brown, 60, said. "Now I'm lucky if I know one out of 25. It's changed that much."

But mostly yesterday was a day for conciliation, marked by the effort of 47-year-old Hali Taylor, who was the inspiration behind all the trilingual peace signs. She copied them from a sign her mother had hung in their home when growing up. She thought her effort would have pleased her mother, who she said was Jewish.

CAPTION: At top, Ernest Fuss, John Lowe and Ralph Shipe talk out the world's problems every day over coffee at Betty's Restaurant. Above, Fuss chats with Doug Kinnett, in cart, in the center of Shepherdstown, W.Va., the small town that is the site of peace talks.