VMware is buying B-hive Networks Inc, a three-year-old privately held application performance management software company, on undisclosed terms.

It says it will use the Israeli start-up and its flagship product, B-hive Conductor, to offer proactive performance management and service level reporting for applications running in VMware virtual machines on both servers and desktops.

B-hive provides a view into end-user transaction response time, virtual machine utilization and cross-virtual machine dependencies and can proactively resolve application performance problems by automatically triggering actions such as dynamically allocating more resources, migrating the application to a different server, provisioning additional VMs, changing transaction routing or rebooting the system.

It is supposed to take VMware a step closer to its vision of an “automated, always-on virtual datacenter.”

Headquartered in San Mateo, California, the start-up’s R&D facility in Israel will now form the core of a new VMware development center in Israel, VMware said.

B-hive takes an agent-less, virtual appliance-based approach that VMware claims goes beyond traditional monitoring techniques to manage application performance to specified levels across physical and virtual environments.

For instance, it said, if B-hive identifies degradation in an application’s response time, it can remediate the problem by automatically instructing VMware Infrastructure to adjust the resources allocated to the application or provision an additional virtual machine with an additional instance of the application.

It is designed to measure performance across multi-tier or service-oriented architecture applications that are distributed across clusters of ESX hypervisors and virtual machines.

The acquisition is expected to close next quarter.

B-hive was funded by Switzerland-based Index Ventures and Venrock Associates as well as private investors. It had collected at least $7.5 million by mid-2006.