In a 1- to 2-quart pan over high heat, combine 1 cup water, sugar, and lime peel and bring to a boil. Let cool, then pour through a fine strainer into a bowl.
In a blender, whirl watermelon and 1 cup of the lime syrup until smooth. If there are seeds, pour mixture through a fine strainer into a bowl. Stir in the lime juice. Add syrup and/or lime juice to taste (mixture will taste less sweet once frozen).
Pour purée into an 8-inch square baking pan. Cover with plastic wrap and freeze until mixture has started to freeze at the edges but is still slushy, 2 to 3 hours. Stir the mixture thoroughly, scraping the sides down. Cover and freeze until solid, at least 8 hours.
To serve, scrape with a fork to make large flakes and spoon into chilled glasses or bowls.
Note: Nutritional analysis is per serving.