Go into bios and complety tear the raid group apart(remove it). Now you should be able to see 2 500 GB drives then. Now go back into bios and create a new raid-1 and add both drives into the raid group and it should see 500GB.
If your controller doesn't have the option to expand the volume, you will need to either
a) recreate the array (you will lose all data on the drive)
b) backup the current array (image the array), recreate the array on the new drive using all 500gig, then restore the image. NOTE: depending on the backup software, some will restore an image to the original partition size. There should be an option to adjust the partition size.