Step 1Heat the oven to 350 degrees.
Step 2To dice the onion, cut the root top and stem bottom off the onion, then cut the onion in half from the stem end down. Place each onion half flat side down on the work surface. Slice each half lengthwise into 1/8-inch slices, then crosswise into 1/4-inch slices. Set aside.
Step 3Cut the pepper lengthwise into 1/4-inch strips, then cut it crosswise into 1/4-inch pieces. Set aside.
Step 4Using a dampened paper towel or cloth and wipe the mushrooms free of any grit or dirt. Break off the caps from the stems. Cut the caps into 4 pieces. Cut the stems into 4 pieces. Set aside.
Step 5Place the water or chicken broth into a saucepan and heat to boiling. Meanwhile, melt the butter in a saucepan over medium heat. When the butter is melted swirl and tilt the pan so the butter spreads evenly over the bottom of the pan. Add the barley and onion and stir, cooking until the onion is a little softened but not browned, 5 minutes. Then add the green pepper, mushrooms and walnuts, and cook, stirring constantly, for 2 more minutes.
Step 6Put the barley mixture into a 6-cup casserole, stir in the heated broth and add salt and pepper to taste. Stir to blend all ingredients well. Put on a lid and bake for 1 hour. Check after 40 minutes and stir the mixture, cover and finish baking until the barley and vegetables are soft, 20 more minutes. Serve.