Which version of OS X should I update my Mac to?
According to Everymac the last OS that machine is capable of running is 10.11 El Capitan.

As to which OS you choose to put on it, that will be dictated by which you have previously 'purchased' from the App Store. You can only download OS versions that are in your purchase history, with the exception of the latest OS - in your case El Capitan, for which there is an exception made for machines unable to run the current OS, Sierra.

If you choose any intermediate OS, you would need to find a friend who has that installer.