In a large saucepan, combine the pineapple, water, gelatin powder and 2 tablespoons sugar. Cook and stir over medium heat just until mixture comes to a boil. Pour into a large bowl. Refrigerate for 45 minutes or until mixture begins to thicken.
In a large bowl, combine peaches, buttermilk and remaining sugar; fold in whipped topping. Fold in gelatin mixture. Pour into an ungreased 13-in. x 9-in. dish. Refrigerate until firm.