Even if it sounds quite weird, the answer to this question is yes. Water can cut through steel, but only with the use of a special device.

A water jet cutter is a tool capable of slicing into different materials, such as metal, with a high-pressure jet of water and abrasive substance. The tool is commonly known as just waterjet.

Waterjet is a very useful and irreplaceable tool in fabrication different machine parts. It's used in a great number of industries, such as aerospace and mining. You can see it in operation in this video:

More Info: en.wikipedia.org