Combine 2 cups sugar and water in a medium-size stainless steel saucepan; cook over medium heat, stirring constantly, until sugar dissolves. Cover and continue to cook 2 to 3 minutes to wash down sugar crystals from sides of pan. Uncover; stir in gelatin mixture. Return to a boil; cook 20 minutes, stirring occasionally.
Remove from heat; let cool 15 minutes. Remove foam; add lemon extract, stirring well. Pour mixture into an 8-inch square pan that has been rinsed with water. Let stand overnight.
Sift together powdered sugar and cornstarch. Set aside.
Run a knife around edge of candy in pan; dip bottom of pan into hot water. Turn candy out onto a board that has been dusted with reserved cornstarch mixture. Turn candy over to coat both sides.
Cut candy into 1-inch squares, using scissors that have been coated with cornstarch mixture. Roll each piece in sugar mixture. Store in airtight containers with extra cornstarch mixture.