"I want my father not to think I'm worthless."
Our heroes leave the Northern Water Tribe so that Aang can begin his search for an Earth Bending teacher. Aang begins to feel guilty and overwhelmed by the sheer power he holds, and the fact that he has killed people while under the control of the Avatar State. At the same time, they meet a general who urges Aang to learn to control that very state's power instead of focusing on the four elements, so that the war can be won quicker. Zuko and Iroh, meanwhile, are outcasts, without their ship; at least until Zuko's sister Azula comes welcoming them back to the Fire Nation with open arms.
Despite Katara's misgivings, Aang is convinced to find a way to purposely trigger the Avatar State after seeing the casualties from a battle. Hilarity Ensues
. Nothing, like scaring Aang, making him wear uniforms from the four nations, or even an energy boosting drink, seem to invoke the Avatar State.
Meanwhile, Zuko can't believe his luck- and neither can Iroh. Ozai isn't the sort of person to just say, "Okay, I made a mistake. Sorry." Something must be up. Zuko accuses Iroh of being a lazy old man who's just jealous of his younger, more successful brother. The two, in spite of Iroh's suspicions, board Azula's ship. Things look all right... until her captain refers to Zuko and Iroh as 'the prisoners'. Realization hits, and Zuko attacks his sister in rage.
Aang, meanwhile, after a talk with Katara and another nightmare, concludes that forcing the Avatar State is a bad idea. He tells the general that the State can only be brought out if Aang is either in danger or enraged. The general decides that the only solution then is attack Aang!
He has his troops converge on the Avatar. Katara and Sokka run in to help, and the general decides to endanger Katara. He uses his earthbending to submerge the waterbender deeper and deeper into the ground, threatening to kill her if Aang doesn't transform. When he completely buries Katara, Aang snaps- and the Avatar State is invoked.
Back at the coast, Zuko and Iroh fight against Azula and her forces. While Iroh is able to fend off the soldiers, Zuko has his hands full fighting his more-skilled sister.
Azula: You know Father blames Uncle for the loss at the North Pole. And he considers you a miserable failure for not finding the Avatar. Why would he want you back home, except to lock you up where you can no longer embarrass him?
Despite Zuko's best efforts, he is unable to overcome Azula. Before the princess can finish him off with lightning, Iroh redirects the bolt and knocks his niece into the water. He and Zuko take this chance to escape.
Back at the base, General Fong is elated. He unburies Katara, and at the sight of her safety Aang powers-down. As he collapses, Avatar Roku contacts him, and tells the secret behind the Avatar State.
Roku: The Avatar state is a defense mechanism, designed to empower you with the skills and knowledge of all the past Avatars. [...] In the avatar state you are at your most powerful, but you are also at your most vulnerable. If you are killed in the Avatar state, the reincarnation cycle will be broken and the Avatar will cease to exist.
Aang comes to in Katara's arms, sorry for what happened. But General Fong isn't. If anything, he's more excited than ever about the Avatar State's power. Sokka just knocks the general out, and the Gaang head out to Omashu- without
the military escort. But they probably won't need it.
At a Fire Nation colony, Azula publicly declares Zuko and Iroh fugitives, and anyone who harbors them will face the Fire Lord's wrath. Far away, Zuko and Iroh, now fully aware of their station, cut their topknots, symbolically cutting ties with their homeland.