i'm still bothered by not understanding how bending is passed down, Of course you can inherit an element from (one of) your parents, but Neither of Katara's parents was a water bender.
Pondering this lead me to the thought: what if her mom was a water bender, but kept it secret because she was afraid of being captured by the Fire Nation? That would add a whole new level of depth to her sacrifice.
Why does that matter here? i think it'd be a cool story. We could follow Kya's life as she struggles with her secret and her fear, and ultimately faces that fear for her daughter.
Just a thought. Other stories set during the Hundred Year War are an option, too. As are stories in Republic city, possibly dealing with the Triads, Police, and Citizens.
Avatar provides a very rich setting to explore.