As afore mentioned, killing Ozai would just be giving him what he wanted. Aang chose the path of peace. Everyone, even the other Avatars, thought that the war would have to end in the blood of the Fire Lord, but that would have been just what Ozai would have done to Aang if he had won. Aang wanted to rise above the years of bloodshed, and finish him peacefully, as he wished the world to be.
It's also a question of balance, if you look at it a certain way. Would it have been right for the war that started with death to end with death, or is there a better way? Like ending this war with peace. Ending mercilessness with mercy? Aang was supposed to restore balance, and ending the war in a way that is the complete opposite of the way it started seems to do this.
It's pretty cool that Aang was able to find another way to defeat the Fire Lord while keeping to the ideals. The other Avatars couldn't, which shows some of his remaining innocence helped him find a better way. Still, it was a slightly too convinient plot twist that he was able to find it.
