Preface: I am a HUGE fan of Borhes. If you are not familiar with him or Tolkinian storytelling, this is not for you. I am not interested in "sticking to the show" in ways others define it. This is indeed an AU, but alternate universes exist, both in this world and the world of Avatar, between which I don't see a true separation anyway.
Ozai was the son of Iroh in many respects.
He was the younger brother, almost 20 years so. He and Azulon didn't expect Ilah to be able to bear a son so late of age, Sheytan definitely had a hand in it since he was born out of a reignited passion between Azulon and his wife and a desire of iroh to have a young protegee to care about and transmit his legacy.
Iroh was so happy to have a younger brother so late, after all the waiting, testing, pining and trying. Ozai was a beautiful baby and the famous painting of him as a little sweet innocent child was done by iroh himself. He felt so proud and happy that day and loved Ozai the way a father would love his child.
He was to become a great ruler one day, one that would put an end to this endless and tiresome war, for better or for worse, no one could tell, but Iroh and Ozai planned for it since the earliest days of Ozai's childhood. Iroh loved Ozai and Ozai loved Iroh and both had great times together, like the time they actually burned a whole lake.
Iroh admired his brother for his devilish playfulness and charm and picked up a few jokes along it, like the one about burning ba sing se to the ground. It was a great time to be alive and Ozai hoped his brother would play along, since his earliest days he showed no regret, just playful, usually dangerous playfull charm and charisma that made people fear and admire him at the same time. He was a great commander since his early days and would often send out his friends on impossible quests just to mess with them. Together, they had great fun, especially his friend Zhao and him were inseparable, they both swore to catch the avatar but Zhao's hubris about it would spell the end of their friendship one day when Zhao foolishly dared to blaspheme the moon spirit, something Ozai never planned but would surely approve of, but merely in theory since he was clever like that.
Zhao never knew Ozai knew this would all end in failure but Ozai was never one to grieve, for him his friends were alive and well whenever he wished it, hence his appearance of icy cold-heartedness. Why grieve when all souls are immortal anyways? Thus, Ozai grew up to be a man who would dare do anything as long as it provided him with exhilaration and fun. He was evil, no doubt, but only evil in the way all true tricksters are.
He loved them all deeply, Iroh, Azula, Lu ten, even Zuko but he never showed it in ways „normal“ people would. He would express his love by sending them on quests that would in the end, make them better people. Since he was noble, the interests and ambitions and ways of thinking of the so called common man never interested him, at all, he was fully devoted to his tricky ways of thinking and acting, knowing full well that one day he would be thanked for it, be it months, years, decades. He never owed anyone an apology since there was nothing to apologize for.
Iroh knew this full well thanks to his great wisdom and insight into all matters spiritual. He knew ozai was destined for greatness, every great drama needs an even greater villain and Iroh knew this full well. For the drama of the war to end, the world needed a villain that would out evil everything that came before and motivate the world into action.
That was the secret plan Iroh and Ozai forged long ago and just waited for an opportunity to bring into action. Nothing is an accident, everything is planned and prophecysed but one needs to be of great a heroic mind to be able to grasp it in its fullness, hence Ozai's actions are comprehensible only to someone able to write heartrending ballads and songs of heroes and villains and common folks.
Thus the plans of Ozai and Iroh which they forged in their youth need time to explain, now that they've come to fruitition they can be analyzed and seen for their reality, Iroh and Ozai were the same person, just at different places, times and moods, they were to be perfectly honest, avatars of each other, both knew always what the other was doing, not always exactly or fully but like two actors playing out their common script.
Lu ten died a martyr's death. What Azula could never comprehend was how precious and essential his presence was for the continued success of the siege. He was a hero, an inspiration, the man in command of the battlefield. But Iroh knew that the taking of Ba Sing Se was not yet to happen. He had to die so that the true son of fire, the lord of the fiery throne could take his place, Zuko. Only someone who has truly suffered can be truly great, and that was to be Zuko's role, hence his scarring and banishing, he was too good and innocent of a soul, but a true king can't exist on mercy alone, hence Azula needed to be his foil, so that he could understand that you can love someone and be jealous of but still feel love and affection for him.
By the time Zuko fought Azula and confronted his father on the day of black sun he was almost ready to understand what his father, or better yet fathers had planned for him. Azula could never be fire lord since she can't handle failure and disappointment in any sensible way, and Ozai knew this, but still fed her perfectionist fire. Only she would be able to make Zuko into a better man, a man his father could be proud of, and that is exactly what happened. The day he fought the avatar was the greatest and most fun day in Ozai's life and his failure would be the start of his transformation into a sage, someone capable of understanding the value of each individual life, even his own, and for that his fire bending had to be gone.
Ozai's part of the script continued on and will continue until Zuko fully grasps the wisdom his father had implanted on him. Regarding Ozai's behavior towards Ursa, it had several reasons. First, a noble lady has nothing to do with commoners, hence his severing of all bonds between her, her former lover and her family. That way she could play the part of the perfect and protective mother for Zuko and the part of the neglectful mother to Azula. All has a reason. As we can conclude, the end of the war was a fire nation internal affair. Only after the fighting stopped could the fire nation rest and play its true and once intended but faultily realized plan of spreading the wealth and greatness and civilization of the fire nation with Zuko at it's helm truly begin. Praised be the gods and their chief, god almighty for this blessing of pain, the blessing of lead turned into silver and gold and the people live true and bold.
This, my dear readers, was the prophecy both known to Sozin and his co-ruler and later heir, Azulon. They had their hand in this vision of victory too. Both knew and both willingly left the scene when their time came to move on to the Spirit World, where they both enjoy both pain for their deeds and bliss for THE deed.
EDIT: Criticism thankfully noted and applied to the best of personal ability. Thanks again
EDIT: Plushu, I meant they burned down the entire surface vegetation of a lake, thus giving it the appearance of being set afire. Edit: New Material
Ozai and his brother were buddies, that doesn't mean they weren't adversaries. One has to hide while the other is awake, they cannot exist at the same place at the same time, they have to follow their script. What seems strange to Ozai seems strange to Iroh, who was sent by his beloved Ozai to keep watch over THE prince while he was awake, reigning the affairs of the fire nation. Ozai would lay wake at night, monitoring the progress of Iroh and Zuko and proudly smile at his adventures. No, Zuko needed a father at that time who wasn't like him, but still he played the part of villain for the sake of good show, making his father proud was Zuko's ideal. This ideal deserved a special place in Ozai's heart and he loved Zuko for every moment of it, but he did not show.
Azula knew this and felt jealous, impatient to track her brother down and play her part in the wild goose chase that was the hunt for the Avatar.
At the end, both win.
Azula found her inner peace the night she was defeated and for the first time in years, she could sleep, seeing that all was under her control but not needing direct supervision. Her insane play was a bluff when you think about it, a way for her to escape reality and see the spirit world for the first time, hence her lack of presence after the finale in the celebration of things. She was insane, and, like Iroh, son of Ozai said, needed to go down.
EDIT: I am declaring this work finished