Currently Google App Engine supports both Python & Java. Java support is less mature. However, Java seems to have a longer list of libraries and especially support for J
I'm a little late to the conversation, but here are my two cents. I really had a hard time choosing between Python and Java, since I am well versed in both languages. As we all know, there are advantages and disadvantages for both, and you have to take in account your requirements and the frameworks that work best for your project.
As I usually do in this type of dilemmas, I look for numbers to support my decision. I decided to go with Python for many reasons, but in my case, there was one plot that was the tipping point. If you search "Google App Engine" in GitHub as of September 2014, you will find the following figure:
There could be many biases in these numbers, but overall, there are three times more GAE Python repositories than GAE Java repositories. Not only that, but if you list the projects by the "number of stars" you will see that a majority of the Python projects appear at the top (you have to take in account that Python has been around longer). To me, this makes a strong case for Python because I take in account community adoption & support, documentation, and availability of open-source projects.
It's a good question, and I think many of the responses have given good view points of pros and cons on both sides of the fence. I've tried both Python and JVM-based AppEngine (in my case I was using Gaelyk which is a Groovy application framework built for AppEngine). When it comes to performance on the platform, one thing I hadn't considered until it was staring me in the face is the implication of "Loading Requests" that occur on the Java side of the fence. When using Groovy these loading requests are a killer.
I put a post together on the topic (http://distractable.net/coding/google-appengine-java-vs-python-performance-comparison/) and I'm hoping to find a way of working around the problem, but if not I think I'll be going back to a Python + Django combination until cold starting java requests has less of an impact.
Based on experience with running these VMs on other platforms, I'd say that you'll probably get more raw performance out of Java than Python. Don't underestimate Python's selling points, however: The Python language is much more productive in terms of lines of code - the general agreement is that Python requires a third of the code of an equivalent Java program, while remaining as or more readable. This benefit is multiplied by the ability to run code immediately without an explicit compile step.
With regards to available libraries, you'll find that much of the extensive Python runtime library works out of the box (as does Java's). The popular Django Web framework (http://www.djangoproject.com/) is also supported on AppEngine.
With regards to 'power', it's difficult to know what you mean, but Python is used in many different domains, especially the Web: YouTube is written in Python, as is Sourceforge (as of last week).