Yeah, that water-test is useless because you can't put 1000psi in that direction to test. It would creep valves open. It only takes like 10psi to open them.
Start with new cylinders and pistons. Use profilometer to measure:
Rpk - reduced peak height
Rk - core roughness
Rvk - reduced valley depth
properties of surface prep, which greatly affects piston ring seal.
Make sure all measurements are on
tight end of clearance range, piston-to-cylinder, ring end gaps. If you're going to be building pre-worn engine, just get used one from junkyard.
Also measure your bearing clearances and get new bearings towards tight end of range. Don't re-use rod-bolts.
And get Cometic all-metal multi-layer headgasket #C8828. Spray 3 layers of copper-coat spray on both sides and let each layer dry fully before next and before installing. Be extremely careful when placing gasket on deck that middle sandwiched layer didn't escape and overlapping outer layers. Gently lower head onto gasket making sure not to disturb gasket.