Increasing the performance of an energetic material can be achieved by changing its composition or using additives, such as metal powders. Aluminum hydride (AlH3) exhibits attractive properties, such as high hydrogen/energy storage, relatively good stability, and low dehydrogenation temperature. AlH3 has excellent prospects for use as a component in solid propellants for increasing the specific impulse of rocket engines and effectively reducing the erosion of engine nozzles. In this work, the effect of AlH3 on the energy performance, ignition characteristics, and combustion characteristics of solid propellants, as well as the agglomeration characteristics of metal particles was investigated. It was found that with increasing AlH3 content, the theoretical mass heat of combustion and the theoretical volumetric heat of combustion of the propellants increased, and the combustion efficiency also gradually improved. When the content of AlH3 in the propellant increased from 0.00% to 17.00%, the temperature of the propellant combustion chamber was reduced from 3314.59 to 2957.49 K and the theoretical specific impulse increased from 2584.2 to 2641.7 N‧s/kg. The average molecular mass of the gas was reduced from 25.54 to 21.54 due to the large amount of hydrogen gas released by the combustion of AlH3. The maximum combustion temperature decreased and the burning rate increased with the gradual replacement of aluminum (Al) in the propellant with AlH3. The maximum combustion temperatures of the pure Al propellant and the pure AlH3 propellant were 2510.5 and 2232.5 K, respectively. The linear burning rates were 0.29 and 0.46 cm/s at 1.0 MPa, respectively. The agglomeration process of AlH3 included three main stages, namely accumulation, aggregation, and agglomeration. With the increase in the AlH3 content, the number of agglomerated particles in the propellant gas-phase flame region decreased continuously.