To make yeast dough, stir 1 teaspoon sugar into warm milk and sprinkle with yeast.
Let stand 5 minutes or until the surface is frothy.
Stir gently to moisten any dry particles remaining on top.
Sift flour, remaining sugar and salt into a large bowl.
Beat egg, warm water and lemon peel in a medium bowl.
Stir in yeast mixture.
Pour into flour mixture; beat to an elastic batter.
Cover and let rise in a warm place 20 minutes.
Beat thoroughly.
In a deep frying pan, heat oil to 375°F (190°C).
Using a wet tablespoon, take small spoonfuls of yeast batter and carefully drop into hot oil, 3 or 4 at a time.
Dip spoon in cold water before taking each spoonful.
Fry doughnuts about 4 minutes, turning once.
Drain on paper towels and keep warm while cooking remaining doughnuts.
To make syrup, put sugar, honey, water and lemon juice into a medium saucepan.
Stir constantly over low heat until sugar has dissolved.
Increase heat and boil 5 minutes, until syrup is quite thick.
Pour over warm doughnuts; sprinkle with pistachios.