How to Make It
Combine 2 cups flour, yeast, sugar, and salt in a large mixing bowl.
Combine water, milk, and 3 tablespoons butter in a saucepan; heat until butter melts. Remove from heat, and cool to 120° to 130°. Gradually add hot liquids to flour mixture, beating at medium speed with an electric mixer. Beat 2 minutes. Add egg; beat 1 minute. Stir in 1 cup shredded cheese and 3/4 cup peppers. Using a wooden spoon, gradually stir in enough remaining flour to make a soft dough.
Turn dough out onto a well-floured surface; add cubed cheese, and knead dough until smooth and elastic (about 8 minutes). Place in a well-greased bowl.
Cover and let rise in a warm place, free from drafts, 40 minutes or until doubled in bulk. Punch dough down; divide in half. Shape each portion into 3 ropes; place ropes on a lightly greased large baking sheet. (You can bake loaves on 1 large baking sheet or on 2 smaller pans, if necessary.) Braid ropes, pinching ends under. Place remaining 1/4 cup peppers between ropes. Cover and let rise in a warm place 20 minutes or until doubled in bulk. Brush loaves gently with melted butter. Sprinkle with remaining 1/4 cup shredded cheese.
Bake at 375° for 20 to 22 minutes or until golden. Remove from pan immediately. Cool on wire racks.
Christmas with Southern Living 2001