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
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).