Preheat the oven to 350 degrees F.
Coat a saute pan with olive oil and place over medium heat. When the oil gets hazy, add the onions, garlic, and bay leaves; cook and stir for 5 minutes until fragrant and soft. Add the olives and some hand-torn basil, reserve the rest of the basil for finishing the chicken. Carefully add the tomatoes (nothing splashes like tomatoes), cook and stir until the liquid is cooked down and the sauce is thick, about 15 minutes; season with sugar, red pepper flakes, salt and pepper. Lower the heat, cover, and keep warm.
Get the ingredients together for the chicken so you have a little assembly line. Put the flour in a shallow platter and season with a fair amount of salt and pepper; mix with a fork to distribute evenly. In a wide bowl, combine the eggs and water, beat until frothy. Put the bread crumbs on a plate, add the 1 cup parmesan, chopped parsley, and garlic powder Season with salt and pepper and stir with a fork until thoroughly combined.
Heat 3 tablespoons of olive oil over medium-high flame in a large oven-proof skillet. Lightly dredge both sides of the chicken cutlets in the seasoned flour, and then dip them in the egg wash to coat completely, letting the excess drip off, then dredge in the bread crumbs. When the oil is nice and hot, add the cutlets and fry for 4 minutes on each side until golden and crusty, turning once.
Ladle the tomato-olive sauce over the chicken and arrange the mozzarella on top. Sprinkle with Parmesan, and remaining basil. Bake for 15 minutes or until the cheese is bubbly. Serve hot with spaghetti.