Read this thread:
98 Avalon XLS Trunk Release Problem and Heater/AC Control Problem
Although its dealing with A/C issues, the fault finding process is the same as the controls for the A/C and heater.
If you are not getting heat, there are only five potential problems:
1. Water control valve in engine compartment inoperable. (lookat it while someone operates heater to verify the arm is opening and closing the valve)
2. Temp control solenoid or actuator motor in dash inoperable (i.e. not sending signal to motor to open valve or motor not opening despite getting a good signal)
3. Missing interior thermostat for Auto heat control
4. Bad auto temp controller
5. Heater core plugged.