In modern Hawaii, haole is used as a (non-discriminatory) reference to white people.
In the past, haole referred to anyone who was not from Hawaii (kanaka maoli being the opposite) and was not considered an insult in the slightest. Ever before that, haole had an occult meaning, like many words in the Hawaiian language. Haole meant "those who do not breathe" and was used to describe the dead, as well as the gods (see Hawaiian mythology).
In AD 1778, Capt. James Cook came to Hawai'i, on board the HMS Resolution. By coincidence, he landed at Kealakekua Bay, a sacred spot on the Big Island: Ke-ala-ke-kua means "the place where the god arrives and leaves" or literally, "pathway [of] the god." By further coincidence (it is believed), he arrived in the middle of a festival (Lono-i-ka-makahiki) devoted to Lono, one of the supreme gods in Hawaiian mythology. Lono had left the island, but promised to return on a floating island.
Cook and his men were English, and the Hawaiians thought them much too pale than possible for a living person who breathed; they were called haole. The word then picked up an additional nuance when Cook's crew, despite his forbidding it, snuck ashore and had sexual intercourse with many of the native women, infecting them with a venereal disease they had picked up from the French in Tahiti. Many died; and thus the white settlers, the haole, brought death, proving that they, themselves, were dead.
