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Install spacers between the caliper halves, you should have more clearance than that, check all the hardware on the rotor and hub.
Go drive it, or try it on the stand. if it still drags, and the pads are not returning, then you have a hydraulic problem.
Either the calipers are sticking, or your master is.
Try that procedure, to narrow it down first. Please post pictures of what you’ve got, so we can help you better. FastFreddy. ;)