Its better to wake the child up.

The reason being that the child would feel more reassured to an abrupt end of the nightmare when he wakes up into his parent's arms rather than enduring the ordeal which could go on for God knows how long. If you let the nightmare continue, you may not always be immediately available when he wakes up from it eventually. To wake up from a nightmare alone will add to his distress. So don't take that chance. However, don't be too harsh in waking up the child. Just keep calling out his name loudly, hold the child in your arms or lap and keep shaking him gently till he wakes.

Ask the child what was the nightmare about, remove his fears, reassure him, investigate the cause (new school, neighbourhood, bullys, teachers, stranger, etc) and consult your doctor