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Preheat oven to 300°F. Beat butter and 1/2 cup of the confectioners' sugar in large bowl with electric mixer on medium speed until light and fluffy. Beat in water and vanilla. Gradually stir in flour until well mixed. Stir in nuts.
Shape teaspoonfuls of dough into crescents. Place 1 inch apart on ungreased baking sheets.
Bake 20 minutes or until very lightly browned.
Mix remaining 1 cup confectioners' sugar and cinnamon. Immediately roll hot cookies in sugar mixture. Place on wire racks to cool. When cool, roll again in sugar mixture.