Place diced bacon in large stock pot over medium-high heat. Cook until almost crisp; add onions, and cook 5 minutes. Stir in water and potatoes, and season with salt and pepper. Bring to a boil, and cook covered for 20 minutes, or until potatoes are fork tender.
Pour in half-and-half, and add butter. Drain clams, reserving clam liquid; Mix reserved clam juice with 1 tbl. flour. Bring to a boil then lower to a simmer, stirring constantly, until desired thickness. Lower heat, add clams and cook for about 5 minutes, or until heated through. Do not allow to boil a second time.