To prepare Sofrito Sauce, heat oil in a medium saucepan. Add onion, pepper and garlic. Sauté until vegetables are tender, about 10 minutes. Transfer to a blender or food processor. Add tomatoes, water and cilantro. Blend or process until smooth. Add salt and pepper.
To prepare meatballs, combine beef, olives, egg, breadcrumbs, garlic, oregano, salt and pepper. Mix well. Form mixture into 30 (1-inch) meatballs. Heat oil in a large skillet over medium heat. Add meatballs and cook until browned on all sides. Drain off fat.
Add sofrito sauce to skillet. Bring to a boil; reduce heat. Cover and simmer until meatballs are thoroughly cooked, about 15 minutes; uncover the last 5 minutes of cooking, if necessary, to thicken sauce. Transfer meatballs and sauce to a serving dish or individual shot glasses.
To prepare Gremolata, combine lime rind, cilantro and garlic; mix well. Sprinkle over meatballs and serve.