The accuracy of existing density functional methods for describing the noncovalent interaction energies in small water clusters is investigated by testing 25 density functionals against a data set of 28 water dimers and 8 water trimers whose structures are taken from the literature and from simulations. The most accurate functionals are found to be PW6B95 with a mean unsigned error of 0.13 kcal/mol and MPWB1K and B98 with mean unsigned errors of 0.15 kcal/mol; the best functional with no Hartree-Fock exchange is mPWLYP, which is a GGA with a mean unsigned error of 0.28 kcal/mol. In comparison, the most popular GGA functionals, PBE and BLYP, have mean unsigned errors of 0.52 and 1.03 kcal/mol, respectively. Since GGAs are very cost efficient for both condensed-phase simulations and electronic structure calculations on large systems, we optimized four new GGAs for water. The best of these, PBE1W and MPWLYP1W, have mean unsigned errors of 0.12 and 0.17 kcal/mol, respectively. These new functionals are well suited for use in condensed-phase simulations of water and ice.