Preheat oven to 350°F. Line a large baking sheet with parchment paper. Place first 9 ingredients in a bowl and gently mix to combine. Moisten hands with cold water. Roll meat into 1 1/2" balls and set on baking sheet. You should have about 48 meatballs.
Bake meatballs for 25 minutes, or until cooked.
Combine tomato sauce, water and pesto in a large pot set over medium, medium-high heat. Drain any fat from meatballs and add to sauce. Bring sauce to a slow simmer, adjusting the heat as needed. Partially cover and simmer 35 minutes, until the meatballs are rich and flavourful.
While meatballs simmer, bring a very large pot of lightly salted water to a boil. Cook spaghetti until tender, about 8 to 10 minutes. Drain well and place in a serving bowl. To prevent noodles sticking, if desired, toss spaghetti with a little butter or olive oil. Set spaghetti and meatballs on the table and enjoy. Serve with the Parmesan cheese and, if desired, chili flakes for sprinkling.
Note: Pesto is sold in our canned tomato product aisle and Deli Department.