So far, all that's known about Na'vi reproduction is that when two Na'vi have chosen one another (a process which can take years) and are to become a mated pair, they, at some point, connect their queues to help forge a bond between them that will last a lifetime. The connection is a very sensual, spiritual, and erotic experience for them, and it is supposed to only happen between those who are have the utmost trust in one another.
Part of the mating is also sleeping together where they meet in their dreams. Not sure how that works with the Avatar as Jake is not really there when his Avatar sleeps.
The mating scene in the movie was cut short because of the confusion/controversy of Tsahaylu that is performed between Na'vi and their animals. Remember, they were trying to keep it clean enough to keep their PG-13 rating. An extended version of the mating scene is suppose to be an extra on the DVD (estimated due out in May 2010). You know I will be trying to get an advance copy and the deluxe version with the extra, extra features (like Target did for Twilight!!).
That said, it's also mentioned that the mechanics of Na'vi reproduction are remarkably similar to humans, so...extrapolate from that what you will, I suppose. :p
Hope this helps~