Place a large dutch oven or other heavy pot over medium heat and add the olive oil.
When the oil is hot, add the onion and garlic with a pinch of salt. Cook for about 5 to 10 minutes or until the onions appear mostly translucent.
Generously season the cubed beef with salt and pepper. Add the beef to the onion mixture. Cook for about 5 to 10 minutes or until it is beginning to look browned on the outside (or at least pink) and has released some liquid.
Add the paprika, sugar, and tomato paste. Stir to distribute evenly throughout the beef mixture and cook for about a minute or two.
Add the flour and stir well until no traces of flour remain. Cook for a minute or two more.
Add the water and the bay leaf. Stir the mixture together and bring it to a boil.
Cover the pot and turn the heat down to a low simmer. Cook for approximately 2½ hours, stirring occasionally, and removing the lid for about the last 30 minutes of cooking time. The goulash is done when the meat is tender and falling apart and the sauce is savory and thickened. Discard the bay leaf before serving.
Serve the goulash over spaetzle, other small pasta, or mashed potatoes. If desired, garnish with a sprinkle of roughly chopped flat leaf parsley.