Baked White Spaghetti

1 cup chopped onion
1 cup chopped green pepper
1 Tablespoon butter
1 can (28 ounces) diced tomatoes, undrained
1 can (4 ounces) mushroom stems and pieces, drained|
2 teaspoons dried oregano
1 pound ground beef, browned and drained, optional
12 ounces spaghetti, cooked and drained
2 cups (8 ounces) shredded cheddar cheese
1 can (10-3/4 ounces) condensed cream of mushroom soup
1/4 cup water
1/4 cup grated Parmesan cheese

In a large skillet, saute onion and green pepper in butter until tender. Add the tomatoes, mushrooms, olives, and oregano. Add ground beef if desired. Simmer uncovered for 10 minutes. Place half of the spaghetti in a greased 13X9 inch baking dish. Top with half of the vegetable mixture. Sprinkle with 1 cup of cheddar cheese. Repeat layers. Mix the soup and water until smooth; pour over casserole. Sprinkle with Parmesan cheese. Bake uncovered at 350 degrees for 30-35 minutes or until heated through.