Currently, the unarchive action does not handle rar files. For now, you'll need to trigger some commandline program from a script. I'm not sure what programs people are using now to unpack rars but I think at some point, Stuffit came with commandline versions.
Thanks for replying. Would be great to know how to do this without the ability to unpack rar files, a lot of ideas I had for using Hazel don't really work.
As mentioned before, you need to find a third party program that can unpack it. Once you have that, you can have Hazel pass the file onto it to do it. Here's one place that has commandline versions: http://www.rarlab.com/rar_add.htm