SEM is search engine marketing which mainly include getting your site listed in search engine results which can be done by ppc(pay per click).
SEO on the other hand is a part of SEM.
As LastMitch said both SEO and SEM are both important you can't really make a choice between.However if you are low on buget and don't want to spend on ppc then SEO apears better provided that you have time and expertise to do so.
Your SEO will help feed your SEM. SEO, SEM, PPC and SMM all go hand and hand. It can be a daunting task to address all of them at a level where they are adequately complimenting one another and producing the desired results. If you are at a loss and have an online marketing budget then it is a good practice to look into some firms that specialize in these areas.