Yes, once it dries out. That space should go completely through the
wall. You can use a good silicone caulk in there. Excavation on the
outside would be unnesecary in my opinion. Trick will be getting the
caulk deep into the hole. <grin>
Somone might recomend hydrolic cement, I think thats the wrong thing to
use in your situation as I understand it.
Now, this shouldn't have leaked, even unsealed in my opinion.
Check you outside grading. Is there at least a 1/4" per foot pitch away
from the house?
Check your downspouts. Do they carry the water away at least 4 feet, 6
or more is better, best is to a drywell or culvert?