In small saucepan, combine sugar, water and jelly; mix well. Cook over medium-high heat about 4 minutes or until sugar is completely dissolved and jelly is melted, stirring occasionally. Cool 5 minutes.
Meanwhile, place watermelon in blender container or food processor bowl with metal blade. Cover; blend until smooth. Add cooled syrup and lemon juice; blend until mixed. Pour into 13x9-inch (3-quart) baking dish. Freeze at least 1 hour or until icy around edges.
Stir and mash with fork to break up ice crystals. Freeze about 2 hours or until all liquid is frozen, breaking up mixture with fork every 30 minutes. Serve immediately or let stand at room temperature 5 to 15 minutes before serving. To serve, stir with fork; spoon into 6 individual dessert dishes.