He debates, for a moment, telling her that what she did — how she managed to save Aang (using the spirit water she'd offered to heal his scar with, he assumes) — was amazing. Azula took him down, and even Zuko had been convinced for a while that the Avatar might not have survived. But even then, when he was living back at the palace and welcomed home as an heir to the throne, he had faith in Katara's ability to heal.

Of course she would've saved the Avatar, of course Aang would be alive. But he didn't tell Azula that. He withheld Katara's talents from her and his father.

"It's, uh, kind of a tight squeeze."

Zuko sits down anyway, scooting as close as he can to the cave wall he's nearest to in attempt to give her some more room. As if she'd have qualms with bumping knees and hips with someone she'd hugged and just held hands with on the way here. He tries not to read too much into that.