1. Sterilize jars, and prepare lids.
2. While jars are boiling, soak onion slices in ice water 10 minutes. Bring vinegar, next 3 ingredients, and 2 cups water to a boil in a 1-qt. stainless steel saucepan over medium-high heat, stirring until sugar dissolves.
3. Drain onion slices; pat dry. Toss together onions and bell peppers. Pack vegetables tightly in hot jars, leaving 1/2-inch headspace. Cover vegetables with hot pickling liquid, leaving 1/2-inch headspace.
4. Seal and process jars, processing 5 minutes.
5. Remove jars from water, and let stand, undisturbed, at room temperature 24 hours. To check seals, remove the bands, and press down on the center of each lid. If the lid doesn't move, the jar is sealed. If the lid depresses and pops up again, the jar is not sealed. Store properly sealed jars in a cool, dark place up to 1 year. Refrigerate after opening.
Total time: 1 hour, 8 min., plus 3 weeks standing time