Stir together water and 1 tsp. sugar in a bowl. Sprinkle with yeast and let stand until foamy, 5 minutes. Butter and flour a 10-cup Kugelhopf or Bundt pan.
Using an electric mixer, cream butter and remaining 3/4 cup sugar on low speed for about 30 seconds, then increase to mediumhigh and beat until light and fluffy. Beat in eggs one at a time, beating well after each. (Mixture will look curdled.) Beat in lemon peel, salt and vanilla. Add yeast mixture; gradually add 2 cups flour. Beat on medium, scraping bowl, until smooth, 5 minutes. Gradually add remaining flour; beat until dough is elastic. Stir in raisins.
Butter a bowl. Transfer dough to it, cover with a towel, and let rise until doubled in bulk, 1 1/2 to 2 hours. Punch dough down and stir in almonds. Transfer dough to prepared pan, cover with a towel and let rise until dough is within 1/2 inch of top of mold, 45 minutes to 1 hour.
Preheat oven to 475°F. Bake Kugelhopf until golden, about 8 minutes. Reduce heat to 350°F and bake until a cake tester comes out clean, 30 minutes. Let Kugelhopf cool for 5 minutes, then turn out of pan onto a rack to cool completely. Dust with confectioners' sugar; slice with a serrated knife; serve with butter.