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Trim and thinly slice the bell peppers (about 5 cups). Thinly slice the yellow onion (about 1 ½ cups). Thinly slice the garlic cloves.
Heat 1 tablespoon of the olive oil in a large skillet over medium heat until shimmering. Add the Italian pork sausage links in a single layer. Cook, turning halfway through, until browned on both sides, 7 to 10 minutes total. Transfer to a cutting board or plate. The sausage will not be cooked through.
Add the remaining 1 tablespoon olive oil to the pan and heat until shimmering. Add the peppers, onion, kosher salt, and black pepper. Cook, stirring occasionally, until the onions are translucent and the peppers are slightly softened, 7 to 10 minutes. Meanwhile, cut the sausage crosswise on a slight diagonal into ½-inch pieces.
Add the garlic, tomato paste, and Italian seasoning to the pan and stir to coat. Cook, stirring occasionally, until the tomato paste is darkened in color, about 2 minutes. Add the can of diced tomatoes and water. Scrape up any browned bits from the bottom of the skillet. Return the sausage and any accumulated juices to the pan, and bring to a simmer.
Reduce the heat as needed to maintain a gentle simmer and cook, stirring occasionally, until the flavors meld and the sauce is slightly thickened, 15 to 20 minutes. Garnish with chopped fresh basil leaves if desired.