As someone who loves both Zuko and Azula, this thesis is completely valid. And it’s also valid for Azula to behave this way as much as it is for Zuko.
Azula loves Zuko, she cares about him, like OP said. The thing is, she grew up in a toxic, unhealthy environment all her life, and contrary to Zuko, who had first his mother and then Iroh, she has no support aside for the man who praises her every move, her father. And so her rude, cruel, “evil” and malicious ways to play with her brother don’t look like that in her eyes. They seem simple playing with Zuko. Even taunting him for what Azulon said, she did it to kind of warn him, I guess? Because I don’t think she thought it could actually happen, and yet it was true.
Azula is a child whose father’s enablement made her blind to the pain she caused, to the point where she couldn’t even see that her way of playing with her brother and friends was wrong, or cruel. And when her mother did not enable her behavior, or justify her way of playing, she considered her the enemy, someone who preferred Zuko over her. Which pushed her towards Ozai even further.
Meanwhile, Zuko is older, he knows his mother and uncle’s compassion. He knows that the way Azula plays with people and with him is wrong. He doesn’t like it. And in his child mind, the basic sibling rivalry is much more than that. He has to prove himself to best his sister and win his father’s love for once. But he fails, Azula taunts him in her way to be a sister, and he grows to hate her. So of course, Zuko grows up resenting his sister, without seeing the good in her. Just what Ozai wants. Not what Ozai made her.
And by Zuko’s pov, Azula is simply the prodigy who follows him and taunts him and takes things away from him, and when she does do things for him, he’s too paranoid to see the good and automatically thinks she is out to get him. He doesn’t realize that the betrayal on the day of the black sun deeply scarred her. He doesn’t realize his leaving once again is just another step towards insanity. And when she fully goes mad, he doesn’t see a sister. Just an enemy. Because at that point he made peace with the fact that she doesn’t care for him and never did, which is a lie.
I think this view and point of view of Zuko was also shared by Iroh, because he too isn’t capable to see the good in her, as he usually does. And given that he wasn’t always present during Zuko and Azula’s childhood, he only sees the grown up version of Azula in which the enablement has cemented.
So in the end, it is all about the character’s perspective. Azula cared for her brother but never showed it in a traditional way, as Zuko wanted, because of Ozai’s influence in her life. And Zuko cares for his sister, loves her even, but has lost all faith in her because he doesn’t align with her way of playing/joking/reacting, and thinks of it as hatred and hostility towards him. As a result he doesn’t see her as someone he loves anymore, but as an enemy.
Their relationship is very complicated, which makes it a good piece of media. I think it can be salvaged, especially after Azula’s comic set in the spirit temple where she made piece with her desire for love and, at little steps, for the realization that her father was not the man she thought he was. But to be done well, Zuko needs to move from his “she is evil” one dimentional stance and see Azula in a deeper way (in the search there were some instances where this already happened, I think), and Azula needs to fully acknowledge that her behavior influenced by Ozai was bad for both of them. They both need to detoxify from all those years of abuse and unhealthy environment, and then try to have a relationship with each other.
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