Ajax in the traditional sense is XMLHttpRequest, which does not allow you encode and send local files to a server.
The common ways of doing uploading through “ajax” means, is to either use a Flash swf to handle the uploading on the same page, or to use a form that has a target of an invisible 1×1 iframe. You have some Javascript show a uploading spinner or whichever. After the file is uploaded, make the server return some Javascript to the iframe like
<script type="text/javascript">
top.MyProject.doneUploading();
</script>
top will allow you to call Javascript in the regular page. In order for that to work though, you must make sure the iframe has submitted to the same domain that the top document is located at.