Adjust oven rack to lower-middle position and heat oven to 400 degrees. Cook garlic, 1 tablespoon butter, and water in small nonstick skillet over low heat, stirring occasionally, until straw colored, 7 to 10 minutes.
Mix hot garlic, remaining butter, salt, and pepper in bowl and spread on cut sides of bread. Sandwich bread back together and wrap loaf in foil. Place on baking sheet and bake for 15 minutes.
Carefully unwrap bread and place halves, buttered sides up, on baking sheet. Bake until just beginning to color, about 10 minutes. Remove from oven and set oven to broil.
Sprinkle bread with cheese. Broil until cheese has melted and bread is crisp, 1 to 2 minutes. Transfer bread to cutting board with cheese side facing down. Cut into pieces.
The serrated edges on a bread knife can pull off the cheesy crust. To prevent this, place the finished garlic bread cheese side down on a cutting board. Slicing through the crust (rather than the cheese) first will keep the cheese in place.