In mixing bowl, cream butter and sugar until smooth.
Add egg yolks, water and vanilla. Mix well.
Add flour and walnuts to the mixture. With wooden spoon, stir until a smooth dough forms.
Shape the dough into a block or wheel and wrap in plastic wrap. Refrigerate for 3-4 hours.
Break off pieces of chilled dough and roll into 1" balls. Bake for 10-12 minutes on ungreased cookie sheet. Bottoms will have browned somewhat and may crack a little.
Let cool slightly until you can handle them. Roll in confectioners sugar. Let cool completely.