How do I properly include an external jar file for a cordova plugin?

You can also add a jar file with:

<lib-file src="src/android/libs/pebble_kit.jar" />

This will add the jar to platforms/android/app/libs/

Your plugin.xml is correct.

Do not edit the plugin.xml after you have added/install the plugin into the project.
When you run cordova build or prepare it will not process the native parts of plugin.xml, it only get's process on cordova plugin add

Update your plugin repo/folder with plugin.xml containing the jar file and the line that you have is correct.

Then do

cordova plugin rm

cordova plugin add

cordova build

The end result verify that /platforms/android/libs/pebble_kit.jar is present after cordova build.