First you need to target the water tower (tab) and then it will prompt you for a button (which is normally mapped to "E".
The thing is, people seem to have trouble completing the mission when they've edited their buttons in any way.
Search your computer for "Profile.bin". It's usually in the "Prototype" folder in your "my documents" folder (under XP anyway). Now move the file to another folder. The game should fall back on default controls. Try completing the mission now.
If it worked you can replace the "Profile.bin" file. You might have to overwrite a new profile.bin the game made when it missed the original. Be careful as you do this.
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