Annalee Newitz writes that "[w]hether Avatar is racist is a matter of debate," but it isn't: the film is racist. Its fundamental narrative logic is racist: it transposes the cultural politics of Westerns (in which the Native Americans are animists who belong to a more primitive race) onto an interplanetary conflict and then assuages the white guilt that accompanies acts of racial and cultural genocide by having a white man save the noble savages (who are also racists). Unlike King Kong—which wrestled with the racial logic of the original—Avatar reproduces the racist logic of its source material. This is not to say the film is not also a condemnation of American imperialism or disastrous environmental policies, because it's that too. I'll address the racial politics more in a moment, but let me address the portrayal of the military (much bemoaned here) first:
It all adds up to crossing a line that I’ve never experienced in a major American film: drawing the audience to cheer the brutal deaths of Americans who are clearly symbolizing the military.
Blackwater/Xe Services LLC is not the military. Mercenaries are not symbols of the military. They are a perversion of the military. James Cameron has an unabashed love for the military (Aliens, The Abyss, etc.) but that love does not extend to those who make war for profit. It's obvious that the only authentic military man in the film is the protagonist, Jake Sully, who lost his legs in a legitimate conflict. He turns from the soulless mercenary-logic like a good proxy for the audience, and this is where the racial politics become problematic.
The titular "avatars" are genetically designed Na'vi bodies that can be remotely piloted by people like Sully with the intent of studying the natives. (Think anthropological immersion at its most literal.) The Na'vi are not merely distrustful of "the space people," they're inherently xenophobic, incapable of trusting any sentient being that doesn't look like them. If that mistrust is justified for some other reason (like a hairy first contact), the film never mentions it, meaning (in a classic case of projection) the humans assume that the Na'vi will be xenophobic before they even meet them.
But the racial essentialism of the film creates a whopper of an unintended thematic irony.* The planet and everything on it do not simply coexist in a harmonious balance of the New Age variety: they are hard-wired into a single neural network that makes the entire planet into a single entity and "the space people" less like a colonizing mercenary force than a disease. The humans are to be resisted not because they are economic imperialists (though they are) and not because they glory in militaristic combat (though they do) but because they are different. They do not belong to the planet and therefore there is no possibility for peaceful coexistence. The only way humans can be accepted is for them to forsake their humanity and become Na'vi. (Think literal assimilation.)
This is not a vision of a racially harmonious social politic: it is an inversion of the logic of passing that seems acceptable only because it imagines the experience of becoming a person of color as necessarily ennobling. The film argues that once a white person truly and deeply understands the non-white experience, he becomes an unstoppable combination of non-white primitivism and white rationalism which is exactly what happens. In order for the audience to support the transformation of Jake Sully into Braveheart Smurf, it must accept the essentialist assumptions that make such a combination possible ... and those assumptions are racist. In football terms, this is a variation of the black quarterback "problem."
For decades, coaches and scouts wished they could find a black body with a white brain in it. ("If only someone could find a way to stuff Peyton Manning's brain into JaMarcus Russell's body!") The essentialist logic at play there is obvious: black people are more athletic than white, and white people are smarter than black. No matter how descriptive these people thought they were being, in truth they were creating the conditions they claimed to describe: black quarterbacks were increasingly valued for raw athleticism, white athletes for their pocket presence and tactical acumen. That's an expectations game based on racist expectations ... and it works according to the same logic behind the narrative of Avatar.
*I'm analogizing race and species here because Cameron's space fable encourages me to do so with all the subtlety of a fry pan upside my head.