Amanhunt for a fugitive accused of kidnapping and a double slaying had (small town; smalltown; small-town) residents in lockdown thursday and shattered the feeling of safety in a place where everyone knows (their neighbors; the neighbors).
small town; their neighbors
smalltown; their neighbors
small-town; the neighbors

The answers are: small-town; the neighbors.

Explanation:

The reason "small-town" is the correct option is because, in this case, it is an adjective that describes the residents. Therefore, it needs to be a compound word, which is two words joined together by a hyphen. And "the neighbors" is the correct answer because in this example "everyone" is a singular prnoun and cannot be used with "their" as that is a possessive adjective used for a plural. Hence, a specific afticle like "the" is a better match and gramatically correct.