C172 in right traffic for Runway 22 at CDW experienced NMAC at 1200 FT with departure from Runway 28.

Narrative

While established on downwind during a series of touch-and-go landings (right-hand traffic pattern to Runway 22); an aircraft taking off from an intersecting runway (Runway 28) climbed up to our altitude and directly toward our aircraft. The Tower advised us of the takeoff aircraft and told the takeoff aircraft that we were in the pattern. While the student was flying the aircraft on downwind; I was attempting to locate the takeoff aircraft. I was not able to see the other aircraft until I had to take control of our aircraft from the student and change direction and altitude to avoid a collision because of the congested nature of the terrain between us and the airport and the lower altitude of the climbing aircraft. When I finally did see the other aircraft; they were south of the extended centerline of Runway 28 and turning south which was taking them more toward a head-on direction to our course. I did not see any evidence that the takeoff aircraft saw us or took any action to avoid a collision.