Let's understand the correct preposition:
Step 1: When talking about the person who performs an action, the preposition "by" is used in passive voice sentences.
Step 2: In the sentence, "The sweet is prepared by his neighbour," the neighbour is the doer of the action.
Step 3: Other prepositions like "with," "to," or "of" do not correctly indicate the agent here.
Therefore, the correct preposition is by.