In a saucepan, combine water, chicken livers and sliced onion. Bring to a boil, reduce heat to low and cover. Simmer for about 20 minutes, or until liver is cooked and tender. Remove from heat, drain and discard onions. Also remove and discard any hard portions of the liver.
Place cooked livers in a blender or food processor and process until smooth. Add chopped onion, sherry, butter or margarine, salt, black pepper and nutmeg or allspice. Pulse to blend. With hands lightly greased, form pate mixture into a mound and place on a serving platter. Chill for 1 hour before serving.