Proof: Suppose O is the center of the circle S. Join OA and OB.
OA = OB = r (radius).
P be any point on AB. It is sufficient to show OP r would imply it is outside the circle).

Clearly $latex \angle APO + \angle BPO = 180^0 $ hence
either both are right angles
or one of these angles is obtuse.
WLOG suppose $latex \angle OPB \ge 90^o $. Clearly in $latex \Delta OPB $ it is the largest angle. Hence side opposite to $latex \angle OPB $ is the largest side in $latex \Delta OPB $. Therefore OB > OP.
This implies OP < OB = r hence P is inside the circle.
As P is an arbitrary point on the chord AB, this shows all points on the chord (except A and B) are inside the circle.