Arrange potatoes cut side down in single layer in 12-inch nonstick skillet. Add water, onion, bacon, 1/4 teaspoon salt and 1/4 teaspoon pepper. Bring to simmer over medium-high heat. Reduce heat to medium, cover and simmer until potatoes are just tender, 18 to 20 minutes.
Uncover skillet and increase heat to medium-high. Simmer vigorously until water has nearly evaporated and potatoes begin to sizzle, about 10 minutes. Continue to cook, stirring occasionally, until potatoes and onion are spotty brown and bacon has rendered completely, 5 to 7 minutes longer. Off heat, stir in thyme and season with salt and pepper to taste. Serve.