In a blender, combine 2 cups diced tomatoes, 1/2 small chopped onion, 1 small seeded and chopped jalapeno pepper, and 1 cup water. Blend until smooth.
Heat 1/4 cup canola oil in a saucepan over medium heat. Carefully stir in the tomato puree and cook for 15 minutes until thickened.
While the sauce is cooking, season the 5 peeled and grated potatoes with salt, pepper, and 1 dash of hot pepper sauce to taste.
Mix in 1 small minced onion, 2 eggs, and 2 seeded and minced jalapeno peppers.
Sprinkle 3 tablespoons of all-purpose flour over the potato mixture and mix until thoroughly combined.
Heat 1/4 cup canola oil in a large skillet over medium-high heat.
Drop the potato mixture into the hot oil by the heaping tablespoon. Flatten slightly.
Cook until golden brown on both sides, about 2 minutes per side. Drain on paper towels.
Continue with the remaining potato mixture.
Serve the potato pancakes with the sauce spooned over the top.