Should schools stress the strengthes of a student and compensate on actual knowlege for easier material or promote academic excellence and use tough curriculums not focusing on "self-esteem" of students?

As Forrest Gump once said, "i think maybe its both."
Positive reenforcement is very important, but holding students to higher standards for praise is more important.

There is nothing wrong with having a weaker student get a C+ and telling them how well they have done to do so.

But designing a system so everybody can feel above average (The Lake Wobegon effect) is a bad idea. Students know when they are getting easy grades and they don't respect that.