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What the better option would be would depend on the kind of travel experience you'd like to have.  If you go by land, you will of course see the countryside, maybe even have the opportunity to stop and see the little cities on the way.  However it will be a 1200kilometer (or so) trip so it will of course be much longer and much more tedious.  Generally speaking, Morocco isn't exactly known for it's beautiful countryside either.  In terms of price a flight would be much much cheaper.  The train in Morocco won't be expensive, depending where you are 10 to 20 euros, then the ferry from Tangier to Tarifa will cost you about 50 euros, then another 60 to 70 euros to take a train from Tarifa to Madrid.  A flight from Rabat to Madrid depending on when you go will be from 20 to 40 euros (without checked baggage).
For the Ferry you can go from Tangier to Tarifa for about 50 euros or you can go from Tangier Med to Algerciras for about 25euros.  However, you'll have to take a 20 euro taxi to get to Tangier med and I just wouldn't recommend it.

Sounds like a flight from Madrid to Rabat would be more practical.

Certainly more practical.  Check out Ryanair as they have the best prices for this flight.

Ryanair, good to know , thanks

And if you can't find flights (with Ryanair) to Rabat on your specific dates, check out the ones going from Madrid to Fes, which is about 3 hrs away from Rabat by train (8 euros). If you do go for the Fes option, then, you can wait for the bus ( costs about half a euro) at the airport to take you to the train station (a 30-40 min ride) or take a grand taxi (white one) for 120 dhs (about 11 euros/a 20- minute ride).