I think this is something of the wrong framing. The Avatar's mandate is to negotiate an end to the war. Our mandate is to represent the Fire Nation and the interests of its citizens while negotiating the end of the war. It's not our job to be an impartial neutral party seeking the right solution any more than its the job of a Public Defender's job to do anything but advocate for their client in the strongest of terms. Even if their client is absolutely guilty as sin.
Which, to be clear, the Fire Nation absolutely is.
Good point. But let's be realistic. Despite the fire nation overall being in the stronger position than the remnants of the earth kingdom... Aang Might not want to kill people. But past Avatars can and have done exactly that.
So dealing with the reality that the Avatar likely *will* come down on us like a tonne of bricks, means that, to save ourselves throwing soldiers blindly at an Avatar-State-Enraged Avatar. Means that right now, any negotiating position from the fire nation, will likely involve at least some concessions. And better to offer them now as a sign of magnamity, than to have harsher terms forced on us after the fire nation military has been smashed apart.
Ultimately, Aang right now wants the fire nation to get out of the earth kingdom. Zuko wants that too. (at least initially) The earth king wants that.
So. Most likely scenario is that likely at least some colonies will be handed back over.
Sidenote: And an amusing thought on Morality.
From a spiritual/religious point of view? Aang is literally correct. I'm not being facetious or flippant there. Previous Avatars have set precedent. Their word is law and if you want to try them they
will crush dissent, and be seen as correct in their decisions, quite literally because "They're the Avatar."
Fire Lord Sozin tried to use Roku as his weapon, or at least to get him to ignore the fire nation colonies. Even tried to claim his position as Roku's Fire Lord and Monarch. Roku said no I'm the Avatar do not test me. Kyoshi too laid down the law with the earth king of her time that the Avatar will not be ordered about. Not only that, but as the Last Airbender left Aang is quite literally the head of state for all air nomads. Legally, spiritually, morally and even in bending power there is no-one above him.
Even past Avatars. They can guide and advise, and try to help the current Avatar avoid their mistakes. But ultimately the Avatar has nothing but their own conscience they're beholden to.
Aang taking away Ozai's bending? Is the correct decision. It would also be the correct decision if he *had* killed Ozai.
The Avatar is the one who decides what being the Avatar means. They can be reasoned with, debated, and some will even accept guidance, advice and even orders. But what all of this means for us. Is that whatever we choose to do, will be correct if we can do it with the avatars aproval.