In a large pot, heat olive oil over medium heat. Add diced onion and minced garlic; sauté until softened, about 5 minutes.

Brown ground beef, breaking it apart with a spoon. Stir in diced tomatoes, tomato sauce, water, bay leaves, dried basil, sugar, and Italian seasoning. Simmer for 1 to 2 hours, stirring occasionally, until thickened.

In a mixing bowl, combine ricotta cheese, grated mozzarella, and grated parmesan cheese. Add dried basil, chopped parsley, and salt and pepper to taste. Stir until well-blended.

Bring a large pot of salted water to a boil and cook lasagna noodles for about 7 minutes, or until al dente. Drain and cool in cold water to prevent sticking.

In a 13x9 inch baking dish, layer meat sauce, noodles, cheese mixture, more meat sauce, and repeat. Finish with noodles topped with remaining meat sauce and grated mozzarella.

Cover with greased aluminum foil and bake in a preheated oven at 375°F for 45 minutes. Remove foil and bake for an additional 15 minutes, until bubbly and golden.

Remove the lasagna from the oven and let it rest for 20-30 minutes before slicing. Garnish with dried basil or parsley before serving.