In a large heavy-bottomed pot, heat olive oil over medium heat. Add in onion and saute 2-3 minutes. Add in garlic and ground beef. Break meat apart as it browns. Once meat has browned completely, pour in diced tomatoes, tomato sauce, water, bay leaves, dried basil, sugar, Italian Seasoning and salt. Bring to boil, then reduce heat to simmer. Cook sauce 1-2 hours or until very thick. You may have to add a little extra water as it reduces down to prevent scorching. This is normal.
Make the Cheese Filling
While meat sauce cooks, make the cheese layer: stir cheeses together in a bowl with basil, parsley and salt & pepper. Set aside.
Cook lasagna noodles 2/3 of the time marked on the package. About 7 minutes or so. Drain and place noodles in a large bowl of cold water.
Layering the Lasagna
Spread 1/2 cup prepared sauce in the bottom of a lightly greased 9x13 baking dish. Layer in 5-6 noodles across the bottom to completely cover. Spread half of the cheese mixture overtop of the noodles and then one third of the sauce. Top with another layer of noodles, the second half of the cheese mixture and another third of the sauce. Final layer is the last of the noodles and the last of the meat sauce. Sprinkle with 1/4 lb. grated mozzarella cheese. So real quick, here is the order of the layers:Meat Sauce (just a little so the noodles don't stick to the bottom)NoodlesCheese FillingMeat SauceNoodlesCheese FillingMeat SauceNoodlesMeat SauceMozzarella Cheese
To bake: preheat oven to 375 degrees. Cover lasagna with greased foil. Bake 45 minutes with foil on. Remove foil and bake another 15 minutes or until cheese has browned and everything it hot all the way through. Remove from oven, cover lightly with foil and rest 20-30 minutes before cutting and serving. Sprinkle with dried parsley flakes, cut into squares and serve.