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Cook the bacon and onion in a 4-quart pan over medium heat until bacon is crisp, and the onion is wilted.
Remove the bacon and onion to paper towels to drain. There should be about 1/2 cup of bacon drippings in the pan.
Add the water, sugar, salt and pepper and cook until the cabbage is tender, about 20 minutes.
Crumble the cooked bacon into the cabbage and serve hot.
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