1. Heat two tablespoons oil in a big deep pot over medium heat. Add onion, pepper and mushrooms, and sauté for six to eight minutes.
2. Add tomato juice, then add another 42 ounces of water. Add sugar and one tablespoon salt, and mix well. Bring sauce to a boil, then reduce heat to a medium simmer.
3. In a large bowl, combine ground beef, remaining 1/4 cup oil, garlic, rice, egg, remaining teaspoon salt and pepper. Mix well.
4. Form meatballs from meat mixture and add to simmering sauce. Cook for 40 minutes.
5. Add spaghetti to sauce and cook for 10 minutes, or until soft.