Do you honestly believe we think water itself is holy? No. It is the prescribed form in which our Lord called for baptism to take place. Through that form is the working of God in the imparting of grace. The water does not give grace, but God gives grace through our obedience to Him.
As for infant baptism, that should be argued in another thread.
Have some forgotten one of the basic doctrines?
Heb 6:1 Therefore leaving the principles of the doctrine of Christ, let us go on unto perfection; not laying again the foundation of repentance from dead works, and of faith toward God,
Heb 6:2
Of the doctrine of baptisms, and of laying on of hands, and of resurrection of the dead, and of eternal judgment.
Baptism is one of the foundational doctrines.
Let's go directly to the source...
Joh 3:5 Jesus answered, Verily, verily, I say unto thee,
Except a man be born of water and of the Spirit, he cannot enter into the kingdom of God.
Christ most explicitly states here that unless one is buried in water and rises from it (baptized) he just will NOT be in the Kingdom of God.
Paul explains what baptism is...
Rom 6:3 Know ye not, that so many of us as were baptized into Jesus Christ were baptized into his death?
Rom 6:4 Therefore we are buried with him by baptism into death: that like as Christ was raised up from the dead by the glory of the Father, even so we also should walk in newness of life.
Rom 6:5 For if we have been planted together in the likeness of his death, we shall be also in the likeness of his resurrection:
Rom 6:6 Knowing this, that our old man is crucified with him, that the body of sin might be destroyed, that henceforth we should not serve sin.
Rom 6:7 For he that is dead is freed from sin.
Rom 6:8 Now if we be dead with Christ, we believe that we shall also live with him:
Rom 6:9 Knowing that Christ being raised from the dead dieth no more; death hath no more dominion over him.
Rom 6:10 For in that he died, he died unto sin once: but in that he liveth, he liveth unto God.
Rom 6:11 Likewise reckon ye also yourselves to be dead indeed unto sin, but alive unto God through Jesus Christ our Lord.
Baptism pictures (shadows for some of you) the death of the old man and the resurrection of the new. There is more than one level of understanding here.
As far as infant Baptism, I agree, that is for another thread.