There's far too much axle extending beyond the locknut. The axle should not extend beyond the dropout. This one clearly will. You will probably need an additional axle spacing collar or two. I don't see any in the picture.
You measured the axle width between locknuts to be 126 mm. What's the total axle length? It should not be more than 130 mm. What does the non-driving side look like? Something is fishy.