I do not think it is possible to delete the entire Watch List, though it is possible to delete all the items on the list by selecting them all at once.
Unfortunately, the only way I know of to add an item back to the Watch List is to find the listing again and add it back manually.
Check your Recently Viewed page to see the last hundred or so items you have viewed, and check your recent searches or Saved Searches and Saved Sellers. Or view your Feed page using the Saved link on the main page in the upper left.
