In a Dutch oven, combine the tomatoes, tomato paste, 1 cup water, onion, sugar, oregano, bay leaf and 1/2 teaspoon each of salt, garlic and pepper. Bring to a boil. Reduce heat and simmer, uncovered, for 1-1/4 hours.
Meanwhile, soak bread in remaining water. Squeeze out excess moisture. In a large bowl, combine the bread, eggs, Parmesan cheese, parsley and remaining salt, garlic and pepper. Crumble beef over mixture and mix well. Shape into thirty-six 1-1/2-in. meatballs.
Place meatballs on a rack in a shallow baking pan. Bake, uncovered, at 400° for 20 minutes or until no longer pink; drain. Transfer to spaghetti sauce. Simmer, uncovered, until heated through, stirring occasionally. Discard bay leaf. Serve with spaghetti with additional Parmesan if desired. Yield: 6 servings.