Preheat oven to 325 degrees F (165 degrees C). Grease a loaf pan.
Stir 1 1/2 cups sugar, applesauce, oil, and eggs together in a bowl; add lemon peel and 1 teaspoon lemon extract. Pour milk into applesauce mixture and stir.
Whisk flour, baking powder, and salt together in a bowl. Add flour mixture to applesauce mixture; stir until well-combined. Pour batter into prepared loaf pan.
Bake in the preheated oven until toothpick inserted in the center of the loaf comes out clean, about 75 minutes. Let bread rest in the pan for 10 minutes before removing to a wire rack to cool.
Whisk 1/2 cup sugar, water, and 1/2 teaspoon lemon extract together in a saucepan over medium heat until sugar is melted and has a thick glaze consistency, 1 to 2 minutes. Poke several holes in the top of the warm bread and brush glaze over loaf.