Add tomatoes, tomato paste, salt, pepper and sugar.
Remove 1-1/2 cups.
Add water, bay leaf and basil to skillet. Simmer, uncovered, for 45 minutes, stirring occasionally.
Meanwhile, combine all meat loaf ingredients with 1-1/2 cups reserved sauce. press into a 9-in. x 5-in. loaf pan lined with waxed paper. Unmold onto a roasting pan.
Bake at 350° for 45 minutes or until no pink remains and a thermometer reads 160°.
Remove from oven; drain.
Spread 1/2 cup of herb sauce over top of meat loaf. Return to oven for 15 minutes. Discard bay leaf and serve remaining sauce over individual servings.