Over medium-low heat, add the oil to a large skillet with the onion, squash, garlic, and bay leaf, stirring occasionally, until the onion has softened.
Add the water. Cover and cook for 15 minutes or until the squash is fork-tender.
Stir in the zucchini, tomatoes, salt, and Thai chili and cook over medium heat, stirring occasionally, for 5 to 7 minutes or until the vegetables are tender. Stir in sage and a few grinds of black pepper to taste.