I'm on an asking spree to cure my horrible memmory.
I read a book similer to hobbit SIMILER not same. The people lived in a shire like town/village and soon discovered a race of goblin like people that lived in the mountains. While searched on of the old houses the found a cache of weopons and armor when they investigate the mountain their swords glow blue(I know lord of the rings but its not for sure) one of the members gets kidnapped and they end up fighing the goblins.
The book was in the fiction area of a elementry school library and near the Mary Pope OsBorn books I THINK but probably not

You don't have many definite details, so it will be hard to figure out a title/author for you. Your best bet is to visit your library's children's department and ask a reader's advisory librarian. Try hard to remember as many details as you can and then write them down -- settings, any character names, friends or enemies, weapons, animals, etc. The library has electronic and print indexes and other resources in all the different fiction genres.