Jim is going to write a novel himself. Not a novelization - and there is a distinction. A novelization basically retells the story of the movie. Jim wants to write a novel that is a big, epic story that fills in a lot of things.
It would be something that would lead up to telling the story of the movie, but it would go into much more depth about all the stories that we didn't have time to deal with - like the schoolhouse and Sigourney [Weaver's character] teaching at the schoolhouse; Jake on Earth and his backstory and how he came here; [the death of] Tommy, Jake's brother; and Colonel Quaritch, how he ended up there and all that.
There might be opportunities in publishing to tell some of the backstory, tell some of the Earth war stories, what went on in Jake's life before the movie. And we'd have that lead up to the sequel that might take place on Pandora several years after our movie closed.
The Avatar prequel would mark Cameron's debut as a novelist.