The PMI has been below 50 for eight months.
"Most of the components of the index rose last month and crossed above the 50-point mark," the report said, citing significant improvement in employment and export orders.
The PMI had jumped to 53.2 points in April, crossing the 50-point threshold for the first time since last October, but the index then fell for four straight months to a three-year low in August.
The PMI index, compiled by Bank Hapoalim and the Israeli Purchasing Managers' Association, had reached a high of 59.1 in December 2010.
The PMI hit a low of 28.5 in January 2009.
Israel's economy grew 3.2% in 2012 and is expected to grow 2.8% in 2013, excluding natural gas production.
The Bank of Israel has cited the low level of the PMI as one reason for lowering short-term interest rates in recent months.