Can I Upgrade RHEL5U1 to RHEL5U5 with reinstall
 

I want to Upgrade a Virtual machine running on RHEL5U1 to RHEL5U5. Should I go for clean install again or, is there a way I can upgrade retaining the data.

If it can be upgraded without re-install, at which point will I get that option after booting up the machine.

Please help.

Why not just do an update via yum? If you have it entitled with RHN it should be fairly simple... yum update. Otherwise, you can create a local repo using your RHEL5u5 media and then configure yum to use it.

Reference:
How do I configure a yum local repository to be able to access a DVD ISO via HTTP on Red Hat Enterprise Linux?
How can I update my system to a particular update level using ISO images with Red Hat Enterprise Linux 5?