I believe the correct answer here is B. me; object of a preposition. We can see that between is a preposition, so everything after it becomes a prepositional phrase.
The pronoun that the sentence lacks is one that does not perform the main action, as Mr. Peter is the one that performs the main action which is “sat;” and one that acts as the object of the preposition “between.”
“Me,” then, is the correct answer because it is an object pronoun (Unlike “I” which is a subject pronoun) and it also acts as the object of the preposition “between,” which expresses a relationship between the nouns “Molly and me” and the other elements of the sentence.
