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Combine warm water, yeast, and 1/4 tsp sugar and stir--allow to rest for 5-10 minutes until foamy.
Pour yeast mixture into the bowl of an electric stand mixer (or into a large bowl if you plan on kneading by hand). Add remaining 1/4 cup sugar, warm milk, butter, egg and salt. Blend mixture until combined.
While mixing on low speed, slowly add the flour, mixing until the dough is smooth and elastic, about 5 - 6 minutes. You may not use all of the flour called for!
The dough should be soft, very slightly sticky when touched with a clean finger. It should be pulling away from the sides of the mixer.
Grease a large bowl with cooking spray or a tiny bit of oil. Place the dough in the bottom of the bowl and turn it over once to coat all sides in oil (this helps keep it from drying out.)
Cover the bowl with plastic wrap. Allow to rise in a warm place until double in size, about 1 hour.
Gently punch the dough down. Add a little flour to your countertop or work surface (or spray it lightly with cooking spray).
Grab a ball of dough, about the size of a golf ball, and roll it out into a long rope (about 1/2 inch thick and around 9 inches long). Tie the rope into a knot and place it on prepared baking sheet.
Cover garlic knots loosely with plastic wrap and allow to rise again in a warm place until double in size, about 1 hour.
Preheat oven to 400° F. Spray a baking sheet with non-stick cooking spray or line it with parchment paper.
Bake for 10-12 min. or until lightly golden on top.
While they're baking, make the garlic sauce by combining all ingredients in a small bowl.
After removing knots from oven, while still warm, brush them lightly with garlic sauce.