I think #2 is right in highlighting the ambivalence of the narrator, and we are never entirely sure how aware the narrator is of this ambivalence. On the one hand he protests that he understands the Burmese and their hatred of being ruled by the British, yet at the same time he, in his narrative, clearly refers to them in insulting and denigrating ways. Yet I personally think this makes the narrator a far more interesting character to study as he shows the way in which we are all impacted by colonialism and stereotypes often without us knowing or being aware of that impact.
Since the reader is privy to the narrator's thought process, it seems clear that the character presented is weak. He begins the story with a clear indictment of Imperialism, but admits to not liking the natives either. "All I knew was that I was stuck between my hatred of the empire I served and my rage against hte evil-spirited little beasts who tried to make my job impossible." This moral ambiguity could be seen as a sign of weakness.
As the story progresses, it becomes clear that he is expected to shoot the elephant. Again, he is in turmoil, between meeting the expectations of the crowd who want him to shoot, and recognizing the fact that the elephant doesn't appear to be a threat any more. Add to that the fact that he is aware that the elephant's death will be a huge loss to its owner. But he doesn't possess the strength to buck the desires of the crowd and shoots the elephant. "And suddenly I realized that I should have to shoot the elephant after all. The people expected it of me and I had got to do it . . . it was at this moment . . . that I first grasped the hollowness, the futility of the white man's dominion in the East."
Ultimately, the narrator is weak because he shoots the elephant, knowing it's the wrong thing to do, but out of fear of "looking a fool."