Heat oil in large frying pan and saute onion and green pepper until tender.
Drain liquid from tomatoes and add water to make 1 3/4 cups.
Add to onion and pepper.
Chop and add tomatoes, along with tomato sauce, sugar, salt and cayenne.
Heat until mixture boils, stir in rice and pour into a 6-cup baking dish.
Cover with lid or foil and bake at 350 about 30-35 minutes, until rice is tender.
Fluff rice with fork.