In order to edit AVI videos in iMovie, you can try converting AVI to iMovie acceptable file format on Mac, then you can get the generated file to be imported into iMovie for further editing in iMovie.

Tip on iMovie supported video file formats:
DV, DV Widescreen, HDV 1080i (25 and 30 fps), HDV 720p (25 and 30 fps), MPEG 4 Simple Profile, iSight.

Doremisoft AVI to iMovie Converter is such the program that allows you to convert AVI files to MOV or DV for iMovie . As it has presets for iMovie, so the output video quality can be optimized. More than that, it can do other video like MP4, MKV, MOV, etc to a specific programs like iMovie, FCP, etc. Also, you can extract audio from the source video with it.

The easy guide on how to edit AVI in iMovie:

Preparation:
Download the AVI to iMovie Converter on your Mac (Mac Mountain, Lion OSX included)
iMovie ( iMovie HD, iMovie 07, iMovie 08, iMovie 09, iMovie 11) installed

Then, start the steps for AVI to iMovie conversion:

1. Import AVI to the application
Click "Add File" to load AVI files from your Mac into the software.

2. Select iMovie as output format
You can select "iMovie" under the menu of "Profile". Also, you can specify a destination folder for saving output files. Additionally, if you would like to edit the AVI in Final Cut Pro, you can directly select "FCP" as output.

3.Convert AVI to iMovie
Click on the green Start button on the lower part of the application window to start the conversion of AVI to iMovie. The "Open output folder when conversion finished" option is ticked by default, so you can get to the converted files right after the conversion. If you are converting a lot of files at a time and you don’t want to wait around your computer, you can just tick the "Shut down computer after conversion" option.