I have a steel bike that I really like and it easily takes 32's with lots of clearance everywhere- except at the chainstays. Currently there is about 1mm on each side of the tire at its widest point.

Can a chainstay be flattened, or otherwise made to provide some extra clearance without hurting the integrity of the frame? I guess I'm looking for 2-3mm on each side.

Edit: it's apparently 520 Reynolds.

Instaling a 30mm tire is just too easy a solution......

many frames can be dented to provide more clearance. What tubing?

Reynolds 520

you should be able to dent those. Search flickr for tools. You can do it with a c-clamp

Yes, you should be able to increase clearance by indenting those steel stays. It's easier to do before the frame is built, but careful use of a C-clamp and some wooden forms to prevent dents where you don't want them ought to work.

How far can you go?

OK , so I've seen hardwood blocks carved out to approximate the profile of the tube and protect it and round bar used to create the dents.

Can I make the dent vertically? The profile is quite flat where clearance is the tightest.

I think you can go flatter with the indenter than some people do, but it really should be indented in the center of the stay along its length. If you go vertically, you are going to cripple the stay.