In a large bowl, combine 1/2 cup applesauce and gelatin; set aside to soften. In a 2-qt. saucepan, bring sugar and remaining applesauce to a boil. Add gelatin mixture; return to boiling. Boil for 15 minutes, stirring constantly. Remove from the heat; stir in vanilla and nuts.
Pour into a buttered 8-in. square pan. Cover and chill overnight. Cut into 1-1/2-in. x 1/2-in. pieces; roll in confectioners' sugar. Refrigerate for several hours. Store in an airtight container in the refrigerator.