@boomerang,
Hmmm... I usually correct it, and then test it. Which I guess is somewhere in between?
For example, spelling tests. We go over them the day before the test. I read 'em out, she writes them. If she's wrong, I don't just leave it, I say "you got that last one wrong." Either she corrects it on her own (usually) or if she's just stuck, I show her the list with the correct spelling.
Then she figures out a way to memorize that (usually some sort of pronunciation thing).
Then a bit later, I test her again. She almost always has it at that point.
Spelling tests are a bit unique because it's hard to test yourself -- if you look at the list, you see the correct spelling. If you don't look at the list, you don't know what words you're supposed to be practicing.
I think there would be some homework situations where I wouldn't want to correct things though.