In a large soup pot, heat olive oil over medium heat. Add onion, green and red peppers, carrot, jalapeno pepper, and garlic. Cook until the vegetables soften, about 5 minutes. Stir in 7 cups water, lentils, tomato paste, kidney beans, and pinto beans. Stir to blend, adding stewed tomatoes, chili powder, cumin, and crushed red-pepper flakes.
Bring to a boil. Reduce heat to medium-low, cover and simmer until lentils are tender, about 45 minutes. If the chili starts to dry out, add hot water as needed. Season with salt and pepper, and serve immediately.