The static dielectric properties of liquid and solid water are investigated within linear response theory in the context of ab initio molecular dynamics. Using maximally localized Wannier functions to treat the macroscopic polarization we formulate a first-principles, parameter-free, generalization of Kirkwood's phenomenological theory. Our calculated static permittivity is in good agreement with experiment. Two effects of the hydrogen bonds, i.e., a significant increase of the average local moment and a local alignment of the molecular dipoles, contribute in almost equal measure to the unusually large dielectric constant of water.