In this paper, we propose an effective gray image cryptosystem containing Arnold cat map for pixel permutation and an improved Logistic map for the generation of encryption keys to be used for pixel modification. Firstly, a new chaotic map is designed to show better performance than the standard one in terms of key space range, complexity and uniformity. Generated secret key is not only sensitive to the control parameters and initial condition of the improved map but also strongly depend on the plain image characteristic which provides an effective resistance against statistical and differential attacks. Additionally, to get higher encryption strength of the cryptosystem, both confusion and diffusion processes are performed with different keys in every iterations. Theoretical analysis and simulation results confirm that the proposed algorithm has superior security and effectively encrypts and decrypts the gray images as well.