Diamonds are one of Israel's largest exports and a key reason for only a scant rise in overall exports in 2012.
Polished diamond exports fell to $5.56 billion from $7.2 billion in 2011.
The ministry said in a statement the decline in exports had reached 50% by the middle of the year before starting to recover in August.
"If there are no new global crises in 2013 the improvement will continue and export volumes will reach 2011 levels," said Shmuel Mordechai, the ministry's head of diamonds, gems and jewelry.
Exports of rough diamonds fell 20.1% to $2.8 billion. Imports of polished diamonds slipped 24.9% to $4.3 billion, while rough diamond imports dropped 12.9% to $3.8 billion.
The United States remained Israel's largest market with polished diamond exports of $2 billion, followed by Hong Kong.
Mordechai said the industry in 2013 will have to continue to search for sources of rough diamonds to improve Israel's competitiveness with other global diamond centers.
"The crisis in the US market is the most severe and Israeli exports to this market are at the lowest in the last few years," he said.