The study examined how the mood changesfrom night to morning, and how dysphoric dream contents associate with this change among children who live in traumatic environment and their controls from peaceful area. The sample consisted of 413 Palestinian boys and girls of 6-15 years of age, the mean age being 11.22 ± 2.64. The participants filled in a seven-day dream diary in which they recorded their recalled dreams every morning. First, the results, confirmed that mood change from evening to morning is a general dream function: age and gender are not related to the change. The mood chance was rather associated with what and whom the children dreamt about. Second, the hypothesis of the trauma group showing less change in dysphoric dream content and in the intensity of negative morning mood across a period of time of seven days was not confirmed. On the contrary, the results showed that both dreams incorporating dysphoric themes and negative morning mood decreased only among children living in traumatic conditions. Third, it was hypothesized that there is a stronger association between presleep negative mood and dysphoric dreams, as well as between the dysphoric dreams and negative morning mood among children living in traumatic environment than among children from peaceful area. Contrary to the hypothesis, results for the trauma group revealed a reverse association between evening mood and dream contents: the more afraid, angry and worried children felt in the evening, the more Happy recreation dreams they reported, and the happier evening mood they reported, the more Threatening stranger dreams they had. However, concurring with the hypothesis, a direct association was found between dysphoric dreams and negative morning mood in the trauma group. The more children dreamt about Threatening strangers, the more afraid, angry and worried they felt in the morning. The discussion proposes a model of the correcting or balancing dream function that is characterized by an reverse assimilation ofincorporating evening mood into dreams, and by a direct accommodation of dream content into morning mood.