The hole has been made in the smaller cube and not the larger one! If you hold the smaller cube so that its diagonal is perpendicular to the ground, you see a hexagon, and a cube can be inscribed in it. This cube can be larger than the original cube (SQRT(6)-SQRT(2)=1.035). Later it has been shown that a slightly larger cube can be passed with a different orientation (upto about 1.06066 or 3SQRT(2)/4). This is also called Price Rupert's Cube.