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Common method is to 'cold set' it to 130mm: https://www.sheldonbrown.com/frame-spacing.html
Are you sure it's 120mm? Is quite unusual for a geared frame. Might be 126mm, in which case sometimes you can just shove the wheel in without doing anything if the stays are flexible enough.
Personally I wouldn't remove anything from the wheel itself - likely to cause it to work itself loose/too tight.
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If you were using that wheel in your old frame, then it has already been respaced once to 130mm: it was originally 126mm OLD.
So you can remove those spacers and the one you highlighted: it's there to space the wheel out to 126mm, it extends through the freewheel.
Scroll down the page linked to above, to Axle Spacing Adjustment.
abr
Scilly.Suffolk
@andrewlkho
My old Peugeot frame broke unfortunately so I bought a new (to me) one and am in the process of moving all the components over. Unfortunately, I have discovered that the old frame must have been forced wider at the rear dropouts at some point; the conversion wasn't done by myself. The old frame has 130 mm rear dropouts, the new one 120 mm. The wheel therefore doesn't fit. Is there some way I can remove some of the nuts or other bits of the rear wheel to get it to fit? In particular, I'm looking at the part with a red arrow in the image -- if I removed this but added a smaller washer it would fit (and the chainline looks good). Is this possible?
https://www.dropbox.com/s/pf2rp054d0d8q3w/IMG_5965.JPG?dl=0
https://www.dropbox.com/s/qus4rpqfdbjp2xo/IMG_5964.JPG?dl=0