The first thing to note is many people are skeptical with the idea of Avatar sequels. The skepticism is based on the following arguments:
1. Avatar's revolutionary 3D technology made it work and Avatar 2 wouldn't be special since that revolution would've already pasted. However, Cameron responds in a interview that the sequel will be successful because it will focus more on the story.
2. Avatar did not finished with an open ending, making it very hard for the story to continue.
3. Jake became a Navi and is no longer using Avatar technology which completely negates the title “Avatar 2”.

I'm going to put my faith in Cameron to develop a strong story and argue that the sequels are possible. Even though I'm an undergraduate screenwriter far from the professional level of Cameron, I have been using all the knowledge I've learned to predict how Cameron might structure an Avatar sequel. I've been analyzing Avatar and reading the following sequel rumors over the past week to developed my prediction. The sequel rumors are:
1. In an article at Movie Moron (http://www.movie-moron.com/?p=10837), Landau said the Avatar sequels will follow Jake and Nytiri.
2. Landau also said that the interior of Pandora remains to be explored.
3. In the same article, Cameron said that Pandora has sister moons that will be explored.

I argue the title “Avatar 2” can still be maintained while satisfying these three sequel rumors with the following setup. As you know, Eywa is a mystical force that links everything in Pandora. Landau says the interior remains to be explored. As I see it, Pandora is an embodiment of Eywa and the interior would be the source of Eywa. This is where the exploration of other moons comes in. Since the Navi are too primitive to travel in space, what if the source of Eywa has the ability to link up with sources on other moons. The Navi could thus link up to an avatar body on a different moon, which would satisfy the rumors and the title “Avatar 2”. This is my suggested base structure derived from the facts and rumors; how Cameron molds the story is completely up in the air. I can use my base structure to make a blind guess to what the options might entail.
From what I know in Avatar, the main threat to the Navi are the humans. Since the humans have been driven out, there is not much room for a decent enemy. It would take the humans at least 5 years to be reinforced if they are to make a second assault. Pretty much all of Pandora has just been united though Eywa which rules out the possibility of any kind of civil war. The humans don't have to be completely out of the sequel; perhaps Selfridge retreats to one of the company's other mining sites on a different moon and there he succeeds in convincing the native aliens that the Navi on Pandora are a threat. Jake and Nytiri could possibly become ambassadors to Pandora and use the source of Eywa to link to an avatar body on the other moon in an attempt negotiate peace. And of coarse I could really go out on a limb and predict elements of the third avatar movie. Nytiri and Jake having kids is a possibility. Perhaps Nytiri got pregnant from their little “intimate” moment in Avatar and gives birth to babies in the end of Avatar 2. Avatar 3 could be five years later when their kids are older and when the human reinforcements arrive.
Who knows, this is completely up in the air. Moviegoers must realize that in the world of Sci Fi screenwriting, there is no limit to the imagination. As you can see by my prediction, there are elements established in the universe of Avatar making it possible to continue the story. As for prequels, it is an unlimited possibility too, but I must say the way Avatar unfolds, the stronger plot line is found in the sequels not prequels.