In a large skillet, heat 1 Tbsp. oil over medium-high heat. Add diced peppers and Italian seasoning. Cook until peppers soften, stirring, about 5 minutes. Transfer cooked peppers to a small bowl and set aside.
In a large bowl, mix together ground beef, onion, bread crumbs, milk, eggs, tomato paste, garlic, and salt and pepper until well combined.
Transfer two-thirds of the meat mixture into a loaf pan. To make a well for the filling, press meat mixture into pan away from the center and up the sides.
Fill center with cooked, diced pepper mixture. Top with remaining meat mixture, pressing sides together to seal edges. Brush top with remaining olive oil.
Bake in a preheated 350-degree oven for 1 hour and 15 minutes. Remove to a cooling rack. Transfer to a cutting board or platter and rest 10 minutes before serving.